Plan Your Work, Work Your Plan: Trading a Strategy
On some of the technical aspects of trading equities and other financial issues.
Entry/Exit points for a trade is perhaps the most critical side of trading financial issues, it separates the winning trader from a losing one over the long haul.
The Big Q: How is this done?
The Big A: Always trade a proven and successful strategy.
One strategy to consider is dubbed the “breaking channel”
To know (see) the Channel you have to draw it on the issue’s chart, meaning know is what the channel is.
In the context of technical analysis, a channel is defined as the area between 2 parallel trend lines and is often taken as a measure of a trading range.
The upper trend line connects price peaks (highs) or closes, and the lower trend line connects lows or closes.
Breakout points in channels indicate Bullish (on Northside trends) or Bearish (on Southside trends) signals.
Once this concept clear, below is what to do in order to be able to find channels, as follows:
- Use a frame you are familiar with: Mins, Daily, Weekly candles, etc
- Draw into the charts the lines across the tops and below the bottoms.
- Watch closely the trend of a stock on your watch-list aka of interest.
- Once you observe a trend that lasts for at least 10 candles, draw 2 parallel segments that represent the top and bottom of the channel.
The channel is stronger the more taps it gets to its borders. The stronger it gets, the more reliable its signal is for a possible trade.
Now that you know what to look for, the challenge is about how to find the channels in real-time.
Day traders, work on identifying those before a breakout/breakdown is Key for entering or exiting a trade.
This takes a practice and experience on watching chart action as it happens. It is very important to see the charts critically for what is happening instead of what may happen.
A Key quality of a successful trader is the ability to cut out all emotions and any pre-conceptions and wait for the best setup to form then act without hesitation at the right moment.
As an exercise look for channels (setups) for an week and collect data about how many of those you can find and paper trade your discoveries.
That done, next figure out how you can really trade those patterns with real money.
No need to hurry, do your work, learn to recognize the patterns, paper trade them until you are confident. There will always be a trade.
Remember, it is your money, it is your responsibility.
Stay tuned…more to come.