Trading techniques in a nutshell

Personally, I believe in keeping it simple. It’s easy to lose the big picture if you’re relying on too many indicators. Not only can they muddle the picture, but they can often give a signal too late in the day when the main part of the move has already happened.

The trick is to learn to read the charts to recognise patterns, and to learn how to trade those patterns based on their probable outcome. For example, Bull Flags are often a sure fire bet – the price has kicked up, then consolidates over a period of time, gathering its energies before it’s off again. It’s the same with Bear Flags, and pennant patterns. I’m also a great believer in what I call arches – look at the long term charts of currency pairs or an index and you’ll often see that the price almost follows a graceful curve. Within that curve you’ll find there are often ‘kicks’ or pull backs to the arching trend line, or moving average.

Breakouts are something you should be looking out for. Learn to recognise areas of resistance, usually characterised by price points on a chart that can be linked with a horizontal or sloping line. If the price has historically struggled to break through a line, you can often find that when it does break it, it’ll suddenly find a new lease of life and start a big push. How to trade these? Simple – just place an order above a line of resistance, so that if the resistance is breached, your trade is picked up by the flood waters as they make their surge. Or wait for the price to retreat back to the resistance line (as in most cases it will do), and then take the trade as it bounces back off the support-turned-resistance.

Another strategy is to take swing trades – if a price is ranging, take the trade as is bounces of the support and resistance lines either side of the channel it’s in.

Above all, whatever strategy you take, just remember that you won’t always be right. This is a long term game, and if you consistently use sensible strategies you should make money. Just be prepared to be hit by losses, and when this happens take them on the chin. Learn from it, and change your strategy accordingly. If you’ve been swing trading and the price breaks out of the channel, recognise this and go with the price on the breakout. All too many traders stick adamantly to their guns refusing to accept that a decision they made was a wrong one. This is how you lose money.

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