From time to time I discuss more advanced trading tactics and even technical indicators that I feel may enhance a newer trader’s ability to read price. However, you must realize that these techniques are designed to help you with identifying the price levels for trading. They are not to be your sole decision making process.
We need to keep trading as simple as possible, focus our decisions on when to buy or sell based on trend and supply and/or demand. That is the core strategy that we base our trading on and what we teach in our Professional Trader course. When we are sitting down to find trades, the first thing we need to do is to identify the trend we are trading in and even the trend of the larger timeframe. The trend will tell us whether we will have greater probability taking longs or shorts.
Once we discover the probable direction, we then need to identify the best entry and exit zones. I equate trading to riding a train. You first find a train moving in the direction you want, (the trend), and then board at a station (supply & demand zones). Trying to board the train between stations while it is in full motion is extremely risky just as it is financially risky to jump into a trend when it is not at a supply or a demand level.
We buy at demand and sell at supply for several reasons:
- It is the area where we expect prices to resume a fast movement after a pause in the trend. If we are wrong, then we will have very small risk as our stops will be in a logical place that is very close to our entry.
- By entering near the beginning of an impulse, (the dominant move in the trend after a correction), we are going to have greater profits than if we jumped in later as the trend was already moving.
- If we buy or sell with the trend and in those supply or demand zones, we will have a high probability of the trade working out.
When we trade, we want high profit potential, low risk, and high probability for out trades. This is a key to success. So how do the advanced techniques fit in to our trading? They give us another perspective of price and can increase our confidence in taking a trade. You have to use those indicators properly though. Buy and sell signals in the indicators will always happen after we are moving away from the supply or demand levels so they are late. Divergence between an indicator and the price of your security or the indicator sitting in an overbought or oversold zone when we are hitting a supply or demand zone is an odds enhancer for your trade.
Trading is rules-based and needs to be as emotionless as possible. If you are unsure of the rules or how to identify the trend, supply or demand, then visit your local Online Trading Academy center and take a course. Proper education is the best way to protect your capital and grow your money consistently.