Essential Trading

Members of The Squiggly Line Brigade, in their eternal search for the panacea to their trading ills, spend eons developing bolt-ons to their charts, not only obscuring the price action but basically wasting their time. I doubt many traders are innocent of such a folly, not even my past-self. So I'm inspired to add a long-overdue posting, if only for my benefit, to highlight some trading maxims...

Price goes up and price goes down - seldom does it reach it's destination without pausing for breath: in the form of a pull-back or consolidation. If we can identify the retracement or consolidation, we have a good opportunity to jump on the ride - a ride which will most likely continue in the same direction. We don't need an indicator to tell us when price is retracing - it's self-evident.

A pull-back is often alone but sometime brings a mate or more (e.g. Gartley patterns). Because of the mate-factor, when jumping in on a trade you might need to think about a wide-ish stop, or be prepared for a second attempt at jumping on board

Pull-backs are drawn to previous support/resistance levels. Match those up with Fibonacci levels or pivot lines and you have a strong magnet and an ideal level to place your order - ahead of price getting there. We don't need squiggly lines to tell us when price has reached the end of it's pullback - price action will tell us all we need to know.

Price consolidates after a big move. It bounces up and down in a relatively short space, while traders decide where to put their money. The law of averages proves that price will eventually continue in the original direction, by about the same amount as it did before it hit consolidation.

Support and resistance lines can be horizontal or diagonal. They all provide a great opportunity to enter a trade because a) price will bounce off them and continue in the prevailing direction or b) price will break (and close) the other side of them and continue in a new direction - but watch out for the false break-out.

Price will often go the same distance on one side of a trend line, as it had previously the other side. When calculating a target price, work with the most recent (and often most minor) trend line. The more trend line breaks that subsequently occur, the less likely the target will be met. My theory is that this works best where trend lines disappear back into infinity without crossing previous prices - this is somewhat different to how Mr Demark (hat's off sir) suggests drawing supply and demand lines.

"Every action has an equal and opposite reaction" ...it's as true in trading, albeit some time in the future, as it is in the physical universe - trend line breaks are just one example.

The trend is your friend - or is it? It depends which timescales you are drawing your trend information from. The weekly trend isn't really that important if you're trading a 15 minute chart; though the 4 hour trend might be very important.

A single candle or price bar can be worth a thousand words - but only when it's finished forming.

Trading with the masses is more likely to be successful than trading with the few. If the majority of traders are having a break, then so should you.

And finally (at least for now): Trade to live, don't live to trade.