My Favorite Trading Strategy

Posted on October 15, 2008

What I’d like to do in this very short article is give you an overview, looking at the strategic level, of how I trade my favorite setup, which will be the one referred to in most of the analysis on my website. We’re talking, ‘the ’.

Too many make a critical error in focusing exclusively on their entry triggers, and trying to enter on every of that signal, without ANY consideration for where that trigger is occurring within the bigger picture structure.

Too many traders spend far too long trapped in this stage of learning. They a new trigger and a part of their mind then becomes excited that maybe they’ve found the of . It doesn’t matter if it’s an 10/20 crossover, or perhaps a crossing above zero, with stochastic rising, and above 50. It is NOT the . It is just an entry trigger.

The fact is:

* Structure tells you where to trade.

* Entry triggers tell you when to get in and out of your .

on defining the structure of the first, and then look for a trigger.

Let’s say for example that our entry trigger is a reversal pattern… in this case a Bullish Engulfing Candle. Where would you find the higher trade?

Would it be at the top of an extended rally, where the Bullish Engulfing pattern is pushing straight up into the overhead ?

Or is the higher trade where the Bullish Engulfing pattern shows that a major support level has held and there is significant profit potential still available from the entry point to a projected at the overhead level.

It’s exactly the same entry trigger, but obviously the structure tells us that the second entry is the higher trade.

REMEMBER: The structure (in this case Support & ) tells you where you should trade. The trigger tells you when to get in or out.

Now, structure doesn’t need to be just support and . YOU need to consider, ‘what is the reality of price action as you see it? What do you believe causes price to move?’

Have a look at a number of charts… What do you see?

Is it perhaps a framework of support and levels defining areas of price stall or reversal in the ?

Do you see a “rubber band” type concept, with the reaching extremes and then reverting to the mean, or centerline average? back and forward between the upper channel line, the centerline, and the lower channel line.

Do you see swings? Higher highs & higher , lower highs and lower , with impulses of momentum in between?

Define how you see the bigger picture of movement. What is it that you see when you look at charts? What is the structure? And only then should you look for an entry trigger that gives you a low and/or high trade within the context of your bigger picture.

So, what do I see as the reality of ? How do I trade? What is my ?

Well, in this short article I can’t go into the tactical level - I can’t talk about my entry and exit triggers, and trade management strategies. It would take a whole book because it’s not just a simple indicator based entry or exit. It’s based on price action - on an understanding of the nature of movement of price. That takes a to develop, and it’s something I’ll cover in my website in a more detail.

However, for now I can share a very broad overview of my strategic level concept. At least my favorite one anyway.

The reality of for me is . And that leaves footprints that can be read in a price chart.

All , all turn points, and all areas of support and are a function of the balance or imbalance of .

In particular, the which allow for low or high entries, are areas of support and .

I trade within a framework of support and .

I define all major support and based on a higher , and then look to profit from movement between these areas on a smaller .

For me, my of choice are forex & equity indices. The longer for defining major support and , is an hourly chart, and the is anywhere from a 1 to 5 minute chart.

The works with other as well, because it’s based on the of . And because are largely fractal in nature, you can adjust the to suit. Say you wanted to trade the daily charts - then you just get your major support and off the higher timeframes - being weekly or monthly charts.

So, the major support and areas are placed on the chart, and I’m looking for any low or high (based on my entry triggers as defined in my plan), going long off major support or going short off major .

And for the in-between major support and ?

If it’s an I look for low or higher entries at areas of minor support.

If it’s a downtrend I look to go short at low or high entries off minor .

And if it’s a sideways , then I to identify low or high entries off both minor support and .

though for all entries - It must be a low or high entry, based on the clearly defined criteria in my plan

So there you are… It sounds simple when looked at from this high level overview. The reality is though, that it’s really hard. The of failed traders clearly show that. takes a long . Whether you relate to my view of the , or prefer some other method of defining structure, spend a of time just watching . Learn to ‘read the tape’ as it used to be called, internalizing the patterns and flow of movement of price. It takes time. Be patient, and embrace the challenge.

Stop just blindly entering at every of your entry trigger. Remember:

* Structure tells you where to trade.

* Entry triggers tell you when to get in and out of your .

Happy

Lance Beggs

(c) Copyright Lance Beggs

http://www.YourTradingCoach.com All Rights Reserved Would you like to learn more about how I trade the forex and equity index ? Check out the articles, videos and resources on my website right now at http://www.YourTradingCoach.com

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