The wrong and right ways of trading
TRADING THE WRONG WAY
Cluttering the chart is the worst mistake a trader can commit. The endless sea of indicators and tools removes all vision from the chart, blocks price action, and eliminates any sense of direction. The signals and analysis are overly conflicting with each other too, (one tool could indicate sell but the other shows hold or buy). This causes paralysis of analysis.
Some traders probably choose these tactics as a method to hide the insecurity about their approach and their trading. Other traders feel comfortable with paralysis of analysis as it allows them to escape a decision and blame other third parties.
TRADING THE RIGHT WAY
Trading the right way requires the right attitude combined together with a consistent and simple approach.
The charts are clear and not overcrowded. The trading method is simple. Trading is approached with a probabilistic and open mindset which realizes that anything can happen with a trade at any time.
It just boils down to a couple of items when analyzing the charts and you will be able to analyze the charts and find setups with a high probability of success just like the big traders, trading teams and banks do.
Point 1. TREND & MOMENTUM
Traders must have a sense of the trend and momentum. The best setups are when both line-up.
- The trend can be well captured with trend channels and medium to longer-term EMA.
- The momentum is best viewed by using candlesticks.
- Also, the fundamentals are an important factor in determining the larger trend.
Point 2. PATTERNS
The market is full of patterns. Forex traders are looking for reliable and consistent ones that have stood the test of time, such as candlesticks patterns and chart patterns. The patterns have more value when they appear in areas with confluence.
Point 3. SUPPORT & RESISTANCE
A key component in understanding the decision moments of the market is via support and resistance (S&R). The battle between trend/momentum and support/resistance always provides interesting potential setups for traders to capitalize. It is at the S&R levels where traders are able to take a bounce and break trade setups. The best tools for finding S&R are tops and bottoms, trend lines, and Fibonacci levels. Here is the simple way of trading multiple time frames in forex.
Although the above 3 pointers will help simplify your approach to trading and enable you to analyze like the pros, it is important to realize that other important work still must be done such as:
- An exact entry and exit strategy:
- Discretionary: waiting for the highest probability setups.
- Non-discretionary: taking setups with a smaller edge but consistently.
- Risk and money management.
- Trading psychology.
- Testing, Evaluations.