Many traders fantasize about a trading system or technical indicator that can capture every jig and zag in the market. A very intoxicating thought, but I'm sorry to have bad news, it's just not. Please do not shoot the messenger!
Despite all the marketing noise on the internet, no system or indicator can do all this.
Have you ever tried setting up your car? Well, if you did, you certainly didn't use just one tool. Depending on the car, it took a whole bunch of specialized tools to get the job done. Not only this, you also need to know how to use the tools and when to use them.
Trying to draw profits from each market on a regular basis is the same. This requires many specialized tools and for most traders technical analysis provides our toolbox.
As the market can be buzzing and booming at any time, we need Toolbox for trading full of technical analysis tools.
For example, when the market is in a trading range, then oscillatory indicators they work very well.
However, when the market is booming, the oscillators do not cost a bunch of beans. When the market is trending, things like moving averages are one of the "tools of choice".
Getting back to the analogy of the car … When your car is not working properly, your mechanic pops it up on a diagnostic machine, which quickly tells them what the problem is. Then it's just a matter of taking out the right tools and parts for the situation.
In terms of trading, the bottom line is, if you can't diagnose the current market then chances are you will be poorly prepared and lose money.
In this post I will share a strategy that will help you get a much better read (diagnosis) in the market. This in turn will ensure that you use the right trading system and technical analysis tools to get the job done.
System Development Technique 1
You need to find the market or timeframes that best fit your trading system.
Let's use my trade secret program as a real example. In this program, I like to look at a specific model of candles, a stochastic indicator and a series of chart formations. This creates a unique system that helps me take advantage of many trades in all markets, including forex, futures and equities.
Although I can find countless deals with this program, it does not mean that it will work equally well all the time in all situations. Let me explain …
Let's say I want to trade stocks. I might look at a 15-minute Microsoft chart and notice not much situations in which my system adjusts. With just a toggle to say 5, 10 or 30 minutes, I can find great settings. However, if for some reason Microsoft does not seem to be producing downward deals on my system then I will just look at other stocks for better opportunities.
Let's look at an example in currency trading. Say you have developed a strategy that looks promising. You will have to scroll through many currency pairs to see which ones contain the most settings, as dictated by your trading methodology.
Let's look at another example. Say you are a line trader and use daily charts. If you don't find a lot of trade settings, you can suddenly find the entire delivery of them by looking at a two-day or weekly chart. You may even want to jump down to a 4-hour chart to get a different perspective.
Once you have found good candidates, you should continue to …
System Development Technique 2
There are enough valid trade settings for your system only half of the equation,
You need to trade the markets that follow! In other words, once they have triggered your entry, they begin to move with a great deal of momentum in the right direction. I cannot stress this enough, impulse is what puts money into your account. Without it, you will make small profits and get whip in conditional market conditions.
Trades that have a lot of inertia will show price bars that make mostly higher highs and higher lows tending upwards. In a downward trend, you will have mostly lower highs and lower lows.
With a strong uptrend, bars will also tend to close at upper third of their scope. With a strong downward trend, they will mostly close in the lower third from the bar range
When looking at my candlesticks, I will also want to see the predominance of green candles in an upward trend and many red candlesticks in an upward trend.
So let's get it all together …
Stage 1: First, find a suitable timeframe that has enough trading settings based on your strategy
Step 2: Make sure that when your trade is triggered you see signs of high speed and follow this
If you do not see signs of high inertia then chances are the market is annoyed and you want to avoid such as plague as they are much harder to make money. Breaded markets also make you stop for more,
By following the steps above, you will receive a small group of "crop cream", stocks of goods, currencies and more.
One last thing to note … Markets are changing, so you have to constantly evaluate whether your favorite stocks, currency, commodity are still behaving the same way. If not, then you need to look for a better timeframe or move to a new market.