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Smart Charting to Increase Your Odds

Where to enter a position in the markets is key. If you can’t get your entry correct, meaning low risk, high reward and high probability, the other components to your trades such as the protective stop and target will not work. Since so many of my article deal with properly entering positions, I want to focus on a simple yet powerful technique related to how you exit positions that should help you increase your winning percentage. To explain this, let’s look at a trading opportunity I took in the NASDAQ Futures.

Profit Zone

In short, your profit zone is the distance from your entry point, which will either be demand or supply, to the opposing demand or supply level. So, in the trade below, the profit zone is the distance from the demand zone (yellow box) to the pivot high (red circle) as that was the highest price could rally prior to buying at demand below. Many would mistakenly take that supply area (red circle) as their target thinking, supply is where price stops rising so you should sell at that price.

NASDAQ 9/15/17

Exiting a trade at the right time is just as important as entering one at the right time.

Think Easy Money

Supply as we know is a price level where there is competition to sell. So, if we sell where others are looking to sell we are going to have to compete with them at that level which makes getting filled for our profit difficult. So, if we know there is competition to sell at supply, that is not where we want to sell. The trading opportunity that makes it much easier to get our sell order filled is to sell before price reaches the area of supply (red circle). Instead of selling our position at the red circle (supply), selling at the blue line will give us a much easier and better chance at getting filled, dramatically increasing our odds. Another way to say this… Instead of selling when there is competition to sell, sell for your profit when there is still competition to buy, this is what I always do.

Profitable Thinking

Free Trading WorkshopIf you have been reading my articles for a while, nothing I have said so far is brand new information; so let’s get to that now. For all our short term and long term trading opportunities, one component that must be present is an ideal risk/reward. No matter how many Odds Enhancers are present, the risk/reward must be there. To help define this for the purposes of this article, when we say 3:1 we mean risking 1 to potentially make 3. Tweet: When we say 3:1 we mean risking 1 to potentially make 3. //ctt.ec/AjOd1+ Furthermore, the 1 is the distance from entry to your protective stop and the 3 is the distance from your supply/demand level to the nearest opposing supply/demand level. However, given the information we discussed above on competition and how it relates to the probability of getting filled, we have an opportunity to increase our odds of a profitable trade.

  • If you are looking for trading opportunities that offer you an actual 3:1, make sure the chart is offering you at least 4:1. If you are looking for 4:1, make sure the chart is offering you at least 5:1 and so on. If you want to increase your winning percentage even more, try this… If you are looking for 3:1, make sure the chart is offering 5:1.

I employ this concept on almost every trading opportunity I find and take. Most people who find 3:1 on a chart, set the trade up there to take action at 3:1, I don’t. Instead, I would make sure the chart was offering at least 4:1 and then take profit at 3:1.

Of course, to do this objectively you must be able to qualify and quantify real demand and supply in any and all markets with a very high degree of accuracy. All the information you need to do this is clearly seen on a price chart if you know what you’re looking for.

Hope this was helpful, have a great day.

Sam Seiden – sseiden@tradingacademy.com

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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