This is a quick post just to explain how simple trading needs to be sometimes. There is no real need for multiple moving averages, various indicators and pattern recognition tools to search for and enter trade positions. One of my favourite entry techniques is a simple trend following entry going long on a higher low or short on a lower high.
There are multiple ways to spot when a market is trending like using the alignment of multiple moving averages but I find the best way is the simplest way. Open the price chart, select the timeframe you want to trade and then use your brain. Look for the highs and lows on the chart and you will soon see which way the prevailing trend is going. You can then build up your analysis from there. Let me show you an example.
Remember, it is important to keep it simple to start. I have marked on the lower highs and lows of what I believe to be the prevailing trend on this timeframe and am now looking for a good trade entry to capitalise on the trend continuing. It would be possible to enter short based on no other analysis apart from this but that would be ineffective and wouldn’t produce very good returns from risk. So I add a few other trading tools but still keep it very simple.
I have now added the following trading tools to the chart:
- Trendline – Joining the tops of the previous highs
- Fibonacci Retracement Levels – Going from previous swing high to swing low
- Trendlines – To create a wedge continuation pattern
I won’t go into a lot of detail on the individual tools and how they work as they are worthy of their own blog posts but basically, I use them to build up the chart in order to get a more accurate and higher probability entry.
The top trend line helps to predict where the next lower high of the trend may occur like a prediction tool. The Fibonacci Retracement levels show where price may find potential resistance and therefore a good place to enter short with a higher probability of price reversing. The wedge pattern is a continuation pattern that I like to use when trading continuations and this is because of their squeezing nature. When price is squeezed it often means that the next move (break) out of the pattern will be considerable and this then provides a higher R:R trade.
In terms of a target profit region, I tend not to place an actual take profit order with my broker but instead just monitor the trade and see how price reacts at my TP areas. This trade is now running and the next “zones” I will look to take profit or scale out of the trade at are 1.12350 and 1.11500. See if you can figure out why these to price levels are important.
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