|THE KEY CONCEPTS THAT MAKE ALL THE DIFFERENCE
IN YOUR TRADING
Trading is fulfilling and can be very rewarding. It is an alluring venture where we see money flowing easily into the pockets of the few who have done it right. However many more have suffered huge losses and we often wonder why and how we can prevent it.
In this article, you will get a few simple ideas that can help you greatly in your trading performance and thus be with the winners.
1. ABILITY TO CONNECT THE RELATIONSHIPS
BETWEEN DIFFERENT TIME FRAMES.
We can break down markets into different time frames. A long term time frame to indicate overall market sentiment, a middle time frame to indicate the immediate trend and a short time frame to determine our entry and exit in the market.
Price charts consist of fractals. If I am to show you a long term chart and a short term chart without telling you which is which, there is no way you can differentiate them. But again there is an order and repetition in these fractals at different levels. With the understanding of these relationships, you can greatly prevent taking risky trades and also greatly improve on the number of your winners.
In the short term chart posted below, there is the typical ‘Head and Shoulders’ pattern and you decide to go long (buy) at where the arrow is and it became a bad trade.
Price in simple terms is made up of oscillations. As seen from the attached charts, we can see that the long term chart is showing oscillations down. The midterm chart on the other hand, is showing a price retracement. If we can see the relationship of what stage price is at when you decided to go long, you would not have taken the trade and instead waited to go short later and take the ride down with the trend.
2. OVER RELIANCE ON INDICATORS.
There are 2 major drawbacks with using indicators as the only signal generator in trading.
3. NOT OBSERVING PRICE.
• Indicators are based on formulas of the previous prices and it WILL ALWAYS LAG. So will you.
• Indicators lose their effectiveness after a short period of profitability. Traders always cannot recognize this until they have lost what they previously made.
• Traders use more and more indicators thinking it will increase the accuracy of their signals, and ended up suffering from analysis paralysis.
However, indicators are still a useful tool for trade confirmation but it should never be used the only basis for entering any trade.
World renowned trader Linda Raschke said, “PRICE IS THE BEST INDICATOR.”
Price is the consensus of value of all market participants expressed in action at the moment of the trade. The ability to read price is the key to win consistently.
It is also the inability of traders to read prices that they always buy at the top and sell at the bottom. Price often gives warnings when the move is almost over.
Quoting Charles Dow, creator of the Dow Jones Industrial Average.
"A person watching the tide coming in and who wishes to know the spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position to where the waves do not come up to it, and finally recede enough to show that the tide has turned.
This method holds good in watching and determining the flood tide of the stock market. The average of (stock prices) is the peg, which marks the height of the waves. The price-waves, like those of the sea, do not recede all at once from the top. The force which moves them checks the inflow gradually, and time elapses before it can be told with certainty whether high tide has been seen or not".
As traders, we must learn to study price for clues as to where to enter or exit a trade and why, always asking questions of price, breaking it down to two different types of recognizable patterns
-- continuation and reversal
Time is the ONLY timeless indicator. If you can read price, you can read the collective consensus of all market participants.
4. NEVER CHASE THE MARKET.
Mastery of emotions and personal psychology is of utmost importance in your trading journey. When a signal comes along, there is always a window of opportunity where you SHOULD take the position. Hesitation and second guessing of the signal takes away precious time off this window and many times trader goes in only AFTER the move has happened. The regret sets in, and feared to be left out, he ‘chases’, only to be caught by the closing door and crushed under the rear wheels of the train.
To overcome this, you must have a trading plan that has the following attributes:
• Tested and proven over a substantial period of time.
• Requires you to take small risk with good potential gain per trade.
• Has high probability of winning.
• Gives objective and clear signals.
5. USE A STOP LOSS AND NEVER TRADE A SIZE TOO BIG FOR YOUR ACCOUNT.
Believe this. It is hard to lose all you have in one trade.
Capital preservation is detrimental in your success. Stories of bankruptcy comes from those who trades too big a size for their account, such that one single loss wipe them out, And the failure to put a stop loss. Determine how much you are prepared to lose BEFORE you take the trade. Losses are inevitable in trading, but never let it hurt your account to beyond salvation.
Congratulations! You have obtained the few key concepts that have helped us to trade successfully for the past years. These ideas have shaped how we traded and they form the backbone of our trading strategies which were tested and proven by trading real money.
We hope you take action and join us in this exciting journey of trading and to successfully create for yourself a 2nd source of income!
Click here to find out how you too, can achieve consistent profitability from trading.
To your success,
The Team from Concept of Price
Concept Of Price Trading Pte Ltd
20 Maxwell Road #09-17
Tel : 6100 1236
Fax : 6392 1837
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No claim is made by Concept Of Price Pte Ltd that the information shown here will result in profits and will not result in losses. Trading stocks and derivatives may not be suitable for all recipients. All comments, techniques, methods, systems, and concepts shown within this manual are not and should not be construed as an offer to buy or sell any of the trading vehicles named herein. The thoughts expressed are not guaranteed to produce profits. All opinions are subject to change without notice. Each trader is responsible for his/her own actions, if any.