Planning your trading strategy requires a thorough understanding of the market you wish to trade. If you’re going to trade the forex markets, the first step is to understand how certain markets are interrelated. One of the most important relationships to watch in the currency markets is how the various pairs and crosses are correlated with price movements in commodities especially. A correlation is, as the name tells us, a relationship between two things. In the financial markets, correlation means that an equity, currency pair, commodity, or market moves predictably along with another. Correlation can be positive, in that when A moves up, so does B; or it can be negative, meaning that when A increases, B decreases (and vice versa).
As technical traders, we must always consult the market. Here’s a method that sets clear support & resistance levels and can be used to trade futures, equities, and forex pairs. In this article I will attempt to give justice to the outstanding observations about market movements made by Seiki Shimizu in his book The Japanese Chart Of Charts. Shimizu’s text documents expected price movements following a particular candlestick shape.
Knowing when to exit a trade can work wonders for your trading returns. Here’s one tool that can help you make that critical decision. It was a very hot day in September and I was at a pri-vate lunch meeting with the CEO and CFO of a legal consulting company. They were making the rounds to encourage well-heeled investors to consider investing in their company. Their stock had a high market cap but a low daily turnover, which for most money managers, is a criterion that brings up a caution ﬂag.
We’re groomed to think of losses as a sign of failure, which is why trading is difﬁcult. But experiencing losses is part of a trader’s life and is something you have to accept. Here’s how to approach the idea in a healthy way.
To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.—George Soros
Since you are likely using sampled data when trading, there is a chance that there could be some distortions in the data. Here’s what you can do to avoid those distortions.
Imagine that most traders consider the price data they use for analysis to be a continuous function. Nothing could be further from the truth. And, depending on your trading style, the impact of this assumption can range from trivial to dramatic. The fact is that the data is sampled data. The sample rate is once per day on daily bars, once per hour on hourly bars, and so on. It doesn’t matter if you average the high, low, and close; you still only have one sample per day on daily bars.
It’s impossible to know when the market will suddenly turn and move in another direction. But there are tools you can apply to your charts to identify those probable turning points. Here’s a simple technique any intraday trader can use. A trader with a small account is in a precarious situation judging when to take a position or to stay out of the action. He is normally a person who wants to be trading in the markets, who is anxious to be involved and often thinks more of the reward than the risk. This is the reason that so many people who try to scalp—that is, take intraday positions for short periods trying to capture a few points during the day—so often come to grief. Trying to guess which way the market will go from one minute to another is a perilous adventure. Often, you can be right in one time frame and wrong in another, and if you’re wrong in the smaller time frame, it may be too late for you by the time you’re justiﬁed in the longer term.
Proﬁting from bottom ﬁshing is notoriously difﬁcult, but this setup may help. Buy low, sell high. How many times have you tried to do that and lost money? Here’s a trading setup for buying stocks making new yearly lows. A shorter phrase for that is bottom ﬁshing. The technique I’ll describe here is not per-fect. You can still lose money, perhaps a lot of it, but the setup gives you an indication of how often bottom ﬁshing works. Perhaps you will have ideas on how to improve the setup.
I’ll begin with a chart pattern I call an ugly double bottom. In Figure 1 you see an example of this at points AB. In a traditional double bottom, price makes a valley, bounces, and forms a second valley at or near the price of the ﬁrst one. In the case of an ugly double bottom, you are looking for a second, higher valley.
In High-Volume Breakouts article, we are presenting breakout trading strategies from professional daytrader and educator, Ken Calhoun. We will look at the role that volume and price-action breakout patterns play in conﬁrming entry signals. As many traders know, the two most important technical trading signals are price and volume. By combining price-action breakout patterns with speciﬁc volume conﬁrmation signals, you can identify strong trading entries as they’re moving to new highs.
You can spot high-volume breakouts whenever volume increases signiﬁcantly—that is, at least 30% higher than their average trading volume—along with a move up in price. These are important because strong volume indicates institutional buying is at work, which can help you ﬁnd good entries. In this article, I’ll show you how to ﬁnd high-volume breakout patterns when you’re entering your trades.
Trading is about recognizing present opportunities where the risk-to-reward is favorable. Forecasting, on the other hand, is outcome dependent. Find out how you can use both and take advantage of those opportunities.
most of us are conditioned to make all our trading decisions based on what we see on the hard right side of a chart. When you look at a chart, price movement that occurred in the past may look like it had only one likely outcome. But when you look at a chart in real time, you don’t know what the outcome will be. There could have been multiple scenarios, and credible people will argue for price to move in completely different paths from a speciﬁc point.
Understanding the building blocks of classical chart patterns can improve your analysis and trading results. Here’s how. Anyone who has studied or traded with classical chart patterns for several years knows the unmistakable feeling when a good pattern develops. The better patterns tend to stand out from the marginal ones, regardless of their shape or classification. This led me to realize that it was the similarities between chart patterns that were important, rather than the differences as defined by pattern names such as head-and-shoulders, triangle, and so on. It became apparent that a model was needed to bridge the gap between the minutiae of classical chart pattern definitions and the common features shared by chart patterns in general. Specifically, the model’s goals are to:
- Offset the lack of classical chart pattern specificity by providing a less subjective though still not entirely fixed criterion for identifying patterns.
- Serve as a notional benchmark for distinguishing valid chart pattern behavior from other types of market behavior, such as trending and exhaustion behavior.
- Minimize the risk of an implied directional bias by excluding the use of traditional “bull,” “bear,” or pat-tern shape terminology.
- Enhance the timing of trading decisions by more nar-rowly defining the specific behavior that coincides with chart pattern breakouts.