Virtual Trading for
the Virtual Trader!
There are of course exceptions to trading rule regarding
trading with higher swing-highs and lower swing-lows. At times,
you will come across a price bar which makes neither a higher-high
or lower-low. This is called an Inside Bar. These you must treat
differently, and require waiting for the bars to follow before continuing
your line.
At times, you will come across a price bar that makes both a higher
high and lower low. This is called an Outside Bar. Here, two swings
are forming in short order. Usually, the swing has occurred first
during the forming of the bar before the outside bar. But this will
not be obvious looking at the price chart because the bar before
the outside bar will not have a lower low or higher high than the
outside bar itself. The trick here is to note the intraday pattern
to determine whether the outside bar formed its bottom or top first.
For example, say price bars have been making lower highs and lows.
We then come to a price bar making both a higher high and lower
low. Do we draw our line to the lower low first, then up to the
new higher high? Or do we draw our line from the low of the price
bar before the outside bar to the high of the outside bar, and then
back down to the low? It all depends on which way price actually
went from the close of the previous price bar, does it not?
However, noting the intraday prices for both price bars, you can
quickly tell where the actual swing occurred and whether the outside
high or low formed first. Then you can continue your line from there.
One quick way is to simply note which way price moves after the
outside price bar. If the next bar makes a higher high, it is likely
that the outside bar’s low formed first with the high last. If the
next bar makes a lower low instead, you then can assume the outside
bar’s high formed first, then it’s low.
Now, once you have constructed your swing chart, and can see swing-bottoms
and swing-tops which you did not know existed before, you are ready
to apply some of those price methods mentioned earlier to these
swing tops and bottoms. Ratios can be applied using the large as
well as the small ranges created by these swing tops and bottoms.
You are on your way in getting more information out of your price
charts than you may have previously.
Stacking the Odds in Your Favor
Being profitable in the high-risk (high profit potential) business
of virtual online commodity
trading which requires hard work. So many trader websites advertise
their trading services as a simple way to make lots of money, which
has been the downfall of many new trading careers. There exists
a few (very few) trading programs on the market which instruct you
when to enter and exit a market position with good annual percentage
gains on investment. They require a large initial capital base and
will also often experience large account equity drawdown from time-to-time.
Most new futures markets
traders do not fit the requirements necessary to trade the commodities,
stock or futures markets this way. Thus, they must learn to make
their own trading decisions in the hopes of increasing their small
market position. These are called “discretionary traders.” Many
desire to trade this way even if they have the capital funding to
trade using a trading program. Because discretionary trading requires
that the trader make all the entry and exit decisions, work must
be done to reap rewards from this type of approach.
A trading plan is a good start for any discretionary trader. Trading
plans are very important for Forex
market traders, where profit & loss potential is high, as is
leverage and trading account margin! FX Forex traders need to follow
a set of personal trading rules so each trade is not merely some
act of chance. Trading based on luck is no better than casino gambling,
which futures trading is certainly not meant to be.
Success at profitable stock market trading or
commodity futures trading is not some mere roll of the dice
based mostly on luck, where you have a 50/50 or less chance of success
in a casino gambling game. It's more like a merchant of a clothing
store that must make fashion decisions each quarter, and if his
insight into the market is a good one, profits will be made by the
sales of his inventory.
However, a bad business decision and he is left with a rack filled
with clothing nobody wants and a financial loss. His success depends
on properly analyzing the market environment and acting accordingly.
Trading is the same.
As a discretionary trader, the task is to stack the odds in your
favor for any given trade consideration. The power to do this is
in every trader’s hands. Do the job well, and you will be rewarded.
Try to take shortcuts due to time restraints or laziness, and the
outcome may be very disappointing. So how might a discretionary
trader stack the odds in his or her favor? That is what we will
now discuss.
See The Big Picture
Many new traders simply want to trade quickly and often. The desire
to make quick money plagues many who enter this arena for the first
time. In addition, they find little time to evaluate their approach
to trading before jumping from one method to another. And the sad
thing is, they may have come across a method that has helped many
before them, but they were passing through at the speed of light
and did not get the gist of it before moving on to something worthless
and costly. I have seen this happen much too often.
Discretionary traders need to understand that time and study is
very important if to ever achieve a good trading approach. So many
common sense approaches are ignored for the quick and dirty buck.
One such approach is simply to see the big picture. This author
has written several articles relating to this very subject, and
for good reason. It is not only a smart thing to do; it is also
something most forget or are too lazy to do.
Market patterns and trends go beyond the simple daily price charts.
They exist on weekly, monthly and yearly price charts as well. An
uptrend on a daily chart may exist only as an one-bar rally on a
weekly chart showing a strong downward direction.
And this weekly move may exist only as a bull trend pullback on
a monthly chart. If you only focus on a daily price chart to base
your trading decision on, you could be entering a market trending
strong against your position.
Therefore, the wise thing to do regardless of the method you choose
to use in trading is to start with the larger time frame (such as
the monthly price chart) and work your way down to the daily or
even intra-day time frames.
A good example of this is the use of a daily time reversal date.
If a trader simply looks to enter a trade based on a daily reversal
date, it may end up as a quick blip on the daily price charts in
favor of the stronger trend long-term.
Trading small reversal blips are certainly not the way to go, unless
you are a scalper, forex markets daytrader, or in to euro
daytrading. To stack the profitable trading odds in your favor,
you will want to discern first the long-term direction (i.e., Monthly
chart), then note the medium-term direction (i.e. Weekly chart),
and if both are in agreement in direction, look to the daily price
chart to time an entry in the same direction as your long and medium-term
trends.
Keep in mind the long-term trend will often have more power over
the medium-term trend, just as the medium & long-term trend
will carry more weight than the short-term or daily price trend.
As a trader looking to stack the odds in your favor, you want to
get the heavy-weights on your side before getting into the ring.
The quick way for those with limited time on their hands to determine
the likely market trend is to use a trendline. Draw it under major
swing bottoms or across major swing tops on the monthly, weekly
and daily price charts to see the dominant trend direction.
For those who wisely take more time at doing this, it is best to
look closely at the different time frame charts and note whether
it shows higher swing bottoms (for an up trend), or lower swing
tops and bottoms for a down trend. Learn to draw swing charts (one
book on this subject is called “Pattern, Price and Time” by J. A.
Hyerczyk), which immediately gives you a birds eye view of the trend
direction.
If your monthly chart trend is up, and your weekly trend is up,
then when you come across a daily swing bottom forming (especially
on an expected reversal date and support price) higher than the
previous daily swing bottom, you have one very powerful buy signal
to go long, looking for an up-trending bullish market to start.
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