Lessons from the Pros

STOCKS Article

Tools of the Trade

We need to be properly prepared for trading the markets. Often, when we lose money in a trade, it is because we were surprised from something that could have been seen beforehand. If we plan properly and use the right tools to trade, we should be able to achieve success.

So, what are the tools needed to trade? In the Professional Trader Course at Online Trading Academy, we teach that in order to minimize surprise, we should plan our trades, but also view those stocks and markets in a larger time frame. This requires the trader to have a minimum of four charts as part of their tools. Why four? We want to view both the broad market (S&P 500), as well as our stock in both our trading time frame and the larger one that will have influence on us.

In the larger time frame, I am primarily concerned with two things: The trend and the supply and demand zones. I want to identify the dominant trend that I am operating in. I also need to find the supply and demand zones of that larger trend as that is likely to be where the impulses will end and where we should take profits.

The smaller time frame is where we can plan and execute our trades. We should also identify the trend and supply and demand zones on this chart. Those levels will define where we will enter into the trade and where we will exit if we are wrong (stop loss). If you notice, I may not identify the target on the smaller time frame. If I am trading in the impulse of the trend and in the direction of the larger time frame, I am likely to break supply and demand on the smaller time chart and should target the zones on the larger one to maximize my profits.

No discussion of trading tools would be complete with talking about the most essential tool for a successful trader. I am not referring to your computer – I mean your trading plan! One commonality that I see with successful traders is that they all have a written trading plan that they actually use!

Having this plan is required for several reasons. A plan reduces the effect of emotions on trading. Fear and greed can cause us to exit trades too early and cut profits short. It also makes us hold on to losing trades way too long. The plan also allows us to fix what isn’t working. If we know the steps we are following to make and manage trades, we can improve them when the market conditions change. Finally, one of the most important reasons for having a plan that is often overlooked is that it allows us to duplicate our successes. We want to make money, and if we find a particular setup that works well, we can use it to continue to win in the markets.

To know how to create and use these tools properly, one would first need to be knowledgeable of the markets. We should never trade a security without properly understanding the mechanics of the exchange and how that product is traded. But the knowledge extends past that to a full understanding of price movement. That knowledge is available at your local Online Trading Academy. Get it today!

– Brandon Wendell bwendell@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.