All market speculators share the same goal, which is to enjoy consistent low risk profits. To accomplish this goal, you must be able to identify market turning points as this is the only way to attain low risk and high reward entries into market (trading) positions. Whether you are a short-term day trader or a longer term investor, nothing changes. Identifying key market turning points is the only way to attain the ideal risk/reward opportunity. Leading Extended Learning Track (XLT) sessions for so long, I have come across many people in the program. Occasionally, I receive an email from a member that is not satisfied with their results and desires better returns. Most of the time, they are not necessarily losing money but they are not making money or not making enough money, and desire more. One of my first questions to them has to do with strategy. I ask them, “Do you have a plan and are you following that plan”? Half of the time the answer is “No,” so we dive into creating a proper plan and the importance of following that plan. The other half says they do have a plan and for the most part, follow it much of the time. For this group, my questions turn to the details of their plan, the strategy, where I look to see if their rules are proper or not. Sometimes, there is a rule or two that is incorrect, so we correct it. In my many years of experience, I have found that most of the time, there is one specific and crucial rule that is missing from people’s plans more than any other and that is the focus of this piece.
Before we discuss this rule and its importance, let’s first turn our attention back to market turning points. Where are market turning points? Price movement in any and all markets is a function of an ongoing demand and supply equation. Market prices turn at price levels where this simple and straightforward equation is out of balance. Therefore, price in any market turns at price levels where demand and supply are out of balance, which means the strongest turns in price occur at price levels where demand and supply are most out of balance. So, the question for us is this: what exactly does this picture look like on a price chart?
When I ask students this question,… Continue Reading
