You may have heard that most people fail in their attempt to trade, or that investing should be left to the “professionals.” The truth is that almost anyone can become a successful trader or direct their own investments and achieve their financial goals.
The main reason that people fail in the financial markets is that they believe that there must be some hidden technique or complicated technical tool that they are not using or not using correctly. They will constantly read books on the subject and experiment with new tools only to abandon them when their frustration levels move high enough or when they identify a new tool to use.
To be successful in the financial markets it helps to keep your trading or investing techniques simple. That’s right, for all of the tools and indicators that are out there, the best traders keep it simple and focus on price movement itself for their decisions.
Take price candles for instance, they give you plenty of information that can be translated into profits if you know how to use them. Each candle is usually based on a period of time. As the chartist, you are responsible for deciding what period you want to assign for your candles. A day trader may use five minute candles (every candle shows price movement for five minutes of time) while a swing trader may choose a 60 minute candle. Investors want a larger perspective of price movement so they may use a weekly candle chart.
The colored portion of a candle is called the body. The body of the candle is the portion between the opening and closing of the period. A green candle body is colored as such because the closing price of the candle was higher than the opening price. The bottom of the body is the opening price and the top of the body is the closing price. Price was bullish for that period. If prices opened higher than they eventually closed, the candle is bearish and the body is colored red.
So, why does this matter to the trader/investor? When looking at charts we can look to see which color is dominating in the timeframe in which we are trading. If you look at your chart and see mostly green candles your trend is up and you should look to buy on pullbacks or, if you are long, you should hold on for more profits. When price starts showing mixed colors in the candles price may be pausing or reversing and you may need to book profits by closing your trade.
When in a short position you would want to see red candles dominating your chart. If the colors of the candles become mixed as you are nearing demand you may need to book your profits on the trade.
This can work for both intraday trading or for longer term investing as you can see during the 2007 market peak and 2008 crash. Red candles mixing into the green bullish trend in late 2007 warned of market weakness before the turn.
Even during the bear market of 2008 price warned when it was nearing the end of the drop with green candles sprinkled in with the red.
The big question remains, “How do you know whether price is pausing or just reversing?” We would want to exit on a reversal but can hold on for more profits during a pause. The answer lies in coupling supply and demand studies with your candle color reading. The color of the candles is simply an odds enhancer. You can use odds enhancers to improve your chances for success in trading or investing. They are not to be used for making entering or exiting decisions. Learn the right way to trade and invest at your local Online Trading Academy center today!
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.
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