Trending, Trading and Sideways Markets

There are three important market phases: Trending, Trading and Sideways Markets.

• You need to identify and distinguish between these phases.
• We will have a somewhat different approach in our Analysis and Planning depending of the phase.

No market or instrument will go in just one direction for ever, although a Trending phase on a stock/share may sometimes continue for months and even years.

Trending, Trading and Sideways Markets 18oct15

1. Trending Phase

In an uptrend we get Higher Highs and Higher Lows, in a Down Trend Lower Lows and Lower Highs.

For an investor or long term trader this is the most important phase.

An investor will in an uptrend ad to his position on pull backs or corrections. Most often long term investors will have a Buy and Hold view.

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How to buy Shares (stocks)

What are Shares and how to buy Shares (or stocks)

If you buy Shares (also know as Stocks, Equities or Securities) in a Company the shares you own represents a portion of ownership in the company, normally entitling the holder to vote on important corporate matters and to receive dividends if dividends are paid.

The more shares you own, the greater is the amount of the company you own. You can get a slice of the Companies profits by receiving a dividend.

The share price is determined by supply and demand. For a successful and profitable company the shares will become more valuable. More people will see it as a good investment and the share price should rise, shares become more expensive.

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How and When to use a Forward Order

In this discussion I want to show How and When to use a Forward Order.

You got your Tip Off for an Instrument, done your Analysis and Trade Planning (Trading Blue Print) and decided on your Trigger Signal.

Now you must have patience to wait for your Trigger Signal to kick in and to execute the trade.

But, it is not always possible to watch a market 24/7. This might be the case for Intra Day as well as End Of Day trading.

Often, if your trigger is a breakout of some strong support or resistance line, the breakout may be volatile. You might be to slow to enter your trade and may then enter to late at a bad price, or not at all.

This is a good time to make use of a Forward Order. Some forward orders can be quite complicated and may be called different names on the different trading platforms. I will just discuss a simple forward order setup that I use frequently.

How a Forward order work:

The idea of a forward order is to have a Stop or Limit order in the market that will trigger if the price break a line, or touch a line, depending on your Trade Planning. You can also enter your Initial Stop Loss level and set your first Profit Taking target. It is often possible to make a Trailing Stop Loss part of the order.

If you entered this whole order structure you can walk away and know what your risks are if the trade is executed.

Most forward orders have 3 actions you may take.

1. Decide on your entry point:

Stop Order:

If you expect prices to break a certain level before you enter you can use a Stop Order that will trigger if prices trade through your level. Remember that if price only touch the level it will not trade.

You Stop Order price should be a few pips/ticks below a support breakout, or a few pips above a resistance breakout.

Remember that your chances of getting a fill is good if the price trade through your levels, but you might get a worse price than what you entered if there is a gap open or some slippage due to volatility in price movement.

Be careful of using this order before an important market announcement.

Limit Order:

If you would for example expect price to retrace back to a certain strong support or resistance level before you enter you will use a Limit Order.

If price retraced as you expected and touch your level you should get a fill.

In the example below you will use a Stop Order for a breakout at 1 and 4. It would have been difficult to enter these trades without a forward order.

At 2 and 3 you would use a Limit Order to enter when price touch the 100 mva. In 2 prices just briefly touched the 100 mva, without the forward order you would probably have bought at a higher price.

Forward Order example 1 5oct15

2. Decide on your initial Stop Loss level:

This will be a Stop Order

You can now enter your Initial Stop Loss level. It is often possible to enter your Stop Loss as a Trailing Stop Loss. If price make big moves and you are not there to take action your Trailing Stop Loss should capture some profit.

The Trailing Stop Loss should not be to close, you do not want to be stopped out if there is only a small pullback.

3. Decide on your Profit Taking levels:

This order will be a Limit Order.

You can now enter you first Profit Taking Target level. I believe it to be extremely important to take some profit (25% to 50% of your position) at the first strong support or resistance level. Not all trades will be a home run.

This is even more important if you trade Intra Day, very often this first profit you take might be your only profit for the trade.

Tip Off Signals to Identify a Possible Trade

There are numerous instruments to trade: Forex and Forex Pairs, Commodities, CBOT Grains, Indexes and Shares. You need some kind of Tip Off Signal to Identify a Possible Trade.

The challenge is to identify the low risk trades.

For this we need some kind of Tip Off to help us identifying these potential trades. A Tip Off does not imply a trade to do.
A important condition for the Tip Off is that it must be visually easy to spot and identify

After getting my Tip Off I will go back to my Trading Blueprint to do a detailed analysis and Trading Plan.

For Intra Day trading

I normally use a 60min chart interval for Intra Day trades and find it difficult (impossible?) to monitor more than a few instruments at a time. You might get more than one buy or sell signal in a day and the tempo and volatility of these trades need you to be very focused.

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Market Orders, Limit Orders and Stop Orders

Market Orders, Limit Orders and Stop Orders are different ordMarket Orders, Limit Orders and Stop Orderser types a trader can use to enter a trade. You will use each of these orders under certain circumstances to reach a specific goal.

1. Market Orders:

A market order is used when you want to enter the market immediately at the best available current price. The market order is normally the default order in most trading systems.

A market order guarantees execution, but it does not guarantee a specific price.

Before you enter a market order you must make sure what the Bid/Ask spread is. In a market with low volume, or in a period of high volatility you run the risk of getting a fill at a much higher or lower price than what you were prepared to pay.

Large orders may take time to fill and prices might move away from your intended price.

But, if prices break important levels and your trigger signals give a buy or sell, a market order might be the quickest way to enter the trade.

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The Setup for a Low Risk Continuation Trade

With this Low Risk Continuation Trade you want to use the advantage of trading with the trend. The Trend is your Friend.

We will always look at ways to minimize risk in any trade.

The Setup I will show you work well with Long Term, Short Term or Intra Day Trading.

We often need a Tip Off to help us identify a potential trade. This technique will help you to identify such trades. You still have to do your Chart Analysis and Trade Plan before you execute the trade. The Setup and Trigger signals stay important.

In the Training Modules I discussed the importance of the Primary Trend and how to identify your Secondary trend’s Buy Zones and Sell Zones.

The same rules still apply, but this may help to identify potential trades quickly when you trade Intra Day or Short term. We will use a combination of Price, the RSI and the Stochastic Momentum Index to time our Execution.

Members can view the Setup with examples >>> here

Intra Day and Short Term Trading

Although the basic Chart Analysis and Trading Plan stay the same for Intra Day and Short Term Trading as for End of Day trading, there is a few small differences in the way you will approach it.

I will show you some case studies of Intra Day trades done the past week

Keep the following in mind:

1.    Stay within the Trading Blueprint

2.   Although the longer term Primary Trend is still important you will focus more on your short term planning chart (60min, 30min or 5 min).

3.   I seldom trade with a periodicity of smaller than 60min. Remember our rule that state that you have to wait for the candle/bar of that periodicity to close before you take the next decision. In other words, if you trade on a 60min chart you must have the discipline to wait for the 60min candle or bar to close before taking the next decision.

4.    You have to be close to your Trading Platform the whole time, if you trade EOD you can walk away, but not with Intra Day

5.    Intra Day volatility can be wild, you have to keep that in mind. Prices may in a day trade up and down, and all over the place but in the end close near the opening price.

6.    Your approach in taking profits will be a little different and more aggressive than with a longer term approach where you trade within the Primary Trend.

7.    Your short term Support and Resistance lines will be very important; this may be great profit taking levels.

Members can view the case studies here

Candlestick Charts and Candlestick Patterns

Candlestick Charts and Candlestick PatternsJapanese Candlesticks and candlestick patterns can form an important part in your trading strategy and decisions.

Our Cheetah Trading System and Trading Plan help us to identify:
1. The Primary Trend
2. The Secondary Trend
3. Buy and Sell Zones
4. Where to Buy Low and Sell High
5. Evaluate the components of our Set Up signals
6. Money and Risk Management Strategy and Procedures

For many of these steps above we use indicators, support and resistance lines, trend lines, and seasonal patterns and so forth.
But for the very important part of your Trigger Signal I believe that the price itself have to show you where and when exactly to enter.

This is where Candlesticks and Candlestick patterns come in very handy.

You will very often be able to fine tune your Trigger point by using these candlesticks.

There is much written about candlesticks charting and its uses. It can get rather complicated and it is not so easy to learn and interpret all the different candlestick patterns. Like many other cases of technical trading, looking back at the history makes it easy to identify all these patters, the trick and challenge is to identify them while they develop and then use it.

I suggest you start with learning a few of the more important patterns.

Top 10 Candlestick Patterns

Here is 5 of the most consistent candlestick patterns.

5 of the most consistent candlestick patterns

I will try to use these candlestick patterns and setups as often as possible

Trading Blueprint

Trading Blueprint; how to approach a Trade

 

Trading Blueprint Image1. Start with the bigger picture – birds eye view

  • If you trade and plan on a DAY chart, what does the WEEKLY chart show?
  • If you trade on 60 min, have a look at the 4 hour chart

2. Is there Seasonal Tendencies or Patterns for this instrument
3. Is prices relatively High or Low for this instrument
4. Determine the Primary Trend for this longer term birds eye view

5. Determine the Primary Trend for your Trading Chart periodicity

6. Identify the Secondary Trend
7. Identify your BuyZones and SellZones
8. Identify and evaluate the different components of your SetUp Signal

 

9. Wait for your Trigger Signal and Execute the trade
10. Put your Money and Risk Management strategy and procedures in place – this is the point where you need to be disciplined and patient. Do not let your emotions kill a potentially great trade.

 

The detail of every step is discussed in the Training Course and Modules

Download as pdf: Trading Blueprint 16sep15