“I am extraordinarily patient, provided I get my own way in the end.”
–Margaret Thatcher
RIP Margaret Thatcher
Sort of like trading huh?
PICKING DIRECTION
One of the hardest things to do in trading is picking a change in the bias of your move. In other words, knowing when to favor being long verses being short. Of course, one of the other hardest things to do in trading is having the conviction of trading in the direction of the trend.
GOLDEN RULES
For, these are generally mutually exclusive and break the two golden rules of trading–One: don’t buy the highs or sell the lows and two: don’t fight the trend.
Over the last few weeks I’ve talked about ways to trade in tune with the dominant trend as well as pick swing changes in the trend. Let’s put it together a little.
BUY DIPS
Looking at a daily euro chart, one should probably think we are in a new long move and we should probably look to buy pullbacks at least for a while. Now, of course, this is subject to change as soon as some European bank has some problem somewhere. So, we have rules for determining which way we should trade.
TRADING RULES
Rule 1
Look at levels – Fibonacci levels, prior support / resistance – for zones of congestion or potential trend change. I wouldn’t set a long term buy on a level simply for the heck of it, but I would scalp off it or watch price action once it’s reached.
Rule 2
Continue to adjust my trend channel and watch price accordingly. Here, you must be careful of false breakouts. Remember, if you trade a break of this channel, look for a strong close above or below the line, then wait for a pullback to get in. Otherwise, you should place your stop below / above the prior swing high or low. That can be a ways off. (Though I have been known to just set it and forget it when trading overnight positions around the European open when I wanted to get some sleep and not manage the trade. But bottom line, understand your risk)
Rule 3
Use trendlines pretty much the same way as you do regression trend channels.
Rule 4
Once price has hit a level, and if price consolidates, look for a break and close one way or the other off minor trendlines to get an early idea of trend change.
Rule 5
Be careful with rule four above, because a triangle or flag pattern can turn into a square or rectangle consolidation pretty easily. So, if your price breaks a sloped trendline, look for a flat one just a little farther away to hold and re-draw everything accordingly.
Rule 6
After you’ve back tested and played with whatever system you’re working, put some money on the line. A trading strategy where you trade with a 2:1 margin and win 80% of the time is worthless if you don’t use it.
Or I suppose you could always be an analyst.
