Trading Strategies.... What, When and How

Every time I am in a meeting or in an group, I have been asked this common question "What are your trading strategies". It seems to be a very basic question BUT it really means you "got to know the stock market from A-Z :-) ". Sounds interesting ?

All right, lets get going. I am going to explain in three important steps which will help you get into the market and then you can customize it to suit your own trading strategy. These are 1: do your homework, 2: do technical analysis and 3: most importantly money management

1: Do your homework night before

Go through the whole stock market, Forex market and equities and general business news those can  have effect on market. Here are some financial websites I regularly check for news update.

Stock watch for global market update
fxstreet for currencies and equities
google finance for major US market.
Americanbulls to track and verify my buy and sell positions

The less websites you check the better, because sometimes more news can only leads to confusion and frustration :-)

2: Method: Technical Analysis

Technical analysis is very important for your trades, else it is hard to decide where and what to buy or sell and where to exit etc. No one can learn all the analytic methods and no trader can know everything about the markets. It is important to select the analytic tools and techniques that make sense to you, put them together into a coherent system and focus on money management.

Technical analysis is an universal language. Knowing the language of technical analysis enables you to read any market in the world. You can apply it it stocks, options, forex and equities. I normally apply it to US stocks, major currency pairs like Eur/Usd, Usd/Jpy, Usd/Chf and gold.

Charts reflects what has happened and indicators reveal the balance of power between bulls and bears. After reviewing each chart you need to go to it's hard right end edge and decide to Buy or Sell or stand aside. You must followup chart analysis by establishing profit targets, setting stop-loss and applying money management.

Before you jump to the strategies I expect you to know how to read basic price action, candlesticks types and drawing trend lines. Once you master these basic concept you can expand your knowledge by studying some advanced techniques like divergence, Fibonacci series and Andrews pitchfork.  

Also it is important that you have trading software like metatrader , thinkorswim or any other software where you will get all the data and charting tools.

Moving Averages Cross Over with Andrews Pitchfork 

Here I am going to explain how to spot a SELL position with moving averages cross over and andrews pitchfork.

• For this I use simple moving averages (SMA)30, SMA(50) and SMA(100). When all these three line towards same direction, you go with the same direction. For example in this picture, all the three sma's line downwards. So you should aim at SELLING. You can see market pulls back to upward but fails to reach 38.2% Fibonacci retracement. Now draw a down pitchfork using top, bottom and top price point and SELL when price break the white trendline. Roughly below 23.6
• While entering your price always put STOP-LOSS. In this case the stop-loss is just above point3 which is 24.5. Here your risk is about 0.9 point
• Now the target would be below 20 ( below the top pitchfork arm).
• Next step is to WAIT until all the SMAs point towards down side and price below the upper arm of the pitchfork. Don't bother watching the stock all the time
• So here your risk is 0.9 point and reward is 3.6 point. So your risk reward ratio is  0.9: 3.6. Pretty good :-)

In my next post I will discuss more about my strategies using harmonic trading patterns like Gartly, butterfly, crab and AB=CD.



3: Money Management

I am pleased to see that you have come so far and interested in knowing the next step which is absolutely MUST to succeed in the market. This involves in money management , keeping journals and sticking to rules. OK, let's grab a cup of coffee and talk about the importance of money management in a trades investment life. Not so difficult but VERY IMPORTANT.
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