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Traders' Magazine
This article written by Nick Santiago was originally published in the august 2014 issue of Traders' Magazine.
- Nicholas Santiago started trading in 1991 and later became a licensed Series 7 and 63 registered representative. He successfully managed money for a large private client group. Nick is an expert in Technical Analysis, accomplished in the studies of Elliot Wave, Gann Theory, Dow Theory and Cycle Theory. Today, Nick is Chief Market Strategist at www.InTheMoneyStocks.com
How to Recognise Trading Chances
How often have you traded a specific chart pattern which has consistently made you money? Most successful traders who utilise technical analysis will search for the same type of chart patterns that worked before when looking for a trade. After all, chart patterns occur and repeat due to the psychology of the people who are trading from them. In other words, when a certain pattern forms on a chart, it is the human emotion of the traders being displayed and unfolded right in front of you.
There are many popular technical patterns on the charts that traders follow. Some well known and traditional patterns that many traders follow are called flags, consolidation patterns, head and shoulders, cup and handles, wedges, double tops, double bottoms, triangles, and more. Most technical traders will seek these type of patterns out everyday, in the hope of the pattern repeating and producing the results it is known for.
What’s Your Time Frame?
These same patterns can be found on all different charting time frames. When it comes to charting, the manner in which you are involved in the markets will determine which time frame you should use. For instance, if you are a day trader or scalp trader who is looking for quick gains during the same trading day, then the intraday chart will be the most beneficial to you. Some popular intra-day time frames include the 5-, 10-, 15-, 30- and 60-minute charts. Scalp traders can even be found utilising a 1-minute chart, while others may trade off of the extremely fast action of a tick chart.
Then there is the swing trader who is looking to buy or short a stock and hold the position for multiple days or weeks. The swing trader will predominantly trade off of the larger time from on the charts, such as the daily and weekly periods. Next, you have the position trader. This individual is looking to stay in a stock for weeks to months, with the intention of riding the position for a much larger move. Finally, you have the investors. Investors will generally look to hold stocks for years, but rarely do they use charts to do so.
Regardless of the type of trader you are, the same patterns can be found on all of the different time frames. With time frames and chart patterns in consideration, have you ever wondered why a particular chart setup which has worked before fails and costs you money? Most do not understand why chart patterns fail. They will usually say things like, the pattern just didn’t work out this time around, they will blame the news or some rare event for the failure of the pattern. Wouldn’t it be great to know if a pattern is going to fail before it happened? Well, there is one way to dramatically increase your odds of success.
Place the Odds in Your Favour
When a chart pattern appears, the successful trader and investor understands how to place the odds in their favour. Considering the odds of a trade, and keeping them in your favour is essentially the smart traders tool for seeing the future.
Very often during the trading session, many day traders will look at a 10-minute chart pattern, which to them, looks ripe for a great trade. However, while the chart looks good on the 10-minute chart, the trade may not have probability on its side. About 90 per cent of the time this is the case, indeed. On the other hand, when you can be correct anywhere near 90 per cent of the time, in trading and investing you will do very well.
With that said, the obvious question presents itself; how do you know when a chart pattern is going to work out or fail with a very high percentage rate of accuracy?
The information in TRADERS´ is intended for educational purposes only. It is not meant to recommend, promote or in any way imply the effectiveness of any trading system, strategy or approach. Traders are advised to do their own research and testing to determine the validity of a trading idea. Trading and investing carry a high level of risk. Past performance does not guarantee future results.
Editors’ Picks
EUR/USD remains offered below 1.1800, looks at US data
EUR/USD is still trading on the defensive in the latter part of Thursday’s session, while the US Dollar maintains its bid bias as investors now gear up for Friday’s key release of the PCE data, advanced Q4 GDP prints and flash PMIs.
GBP/USD bounces off monthly lows near 1.3430
GBP/USD is sliding in tandem with its risk-sensitive peers, drifting back towards the 1.3430 area, its lowest levels in the month. The move reflects a firmer Greenback, supported by another round of solid US data and a somewhat divided FOMC Minutes.
Japanese Yen hangs near one-week low vs. USD amid worries about Japan’s fiscal health
The USD/JPY pair gains positive traction for the second straight day – also marking the third day of a move up in the previous four – and climbs to over a one-week high, around the 155.35 area, on Thursday. Spot prices, however, retreat a few pips during the early European session and currently trade just above the 155.00 psychological mark, up nearly 0.20% for the day.
Editors’ Picks
AUD/USD shrugs off losses, retargets 0.7100
AUD/USD partially fades Wednesday’s pullback, managing to regain balance, leave behind the earlier drop to the 0.7020 zone, and trade with modest gains ahead of the opening bell in Asia. Moving forward, the preliminary PMIs will be the salient event in Oz on Friday.
EUR/USD remains offered below 1.1800, looks at US data
EUR/USD is still trading on the defensive in the latter part of Thursday’s session, while the US Dollar maintains its bid bias as investors now gear up for Friday’s key release of the PCE data, advanced Q4 GDP prints and flash PMIs.
Gold surrenders some gains, back below $5,000
Gold is giving away part of its earlier gains on Thursday, receding to the sub-$5,000 region per troy ounce. The precious metal is finding support from renewed geopolitical tensions in the Middle East and declining US Treasury yields across the curve in a context of further advance in the Greenback.
XRP edges lower as SG-FORGE integrates EUR stablecoin on XRP Ledger
Ripple’s (XRP) outlook remains weak, as headwinds spark declines toward the $1.40 psychological support at the time of writing on Thursday.
Hawkish Fed minutes and a market finding its footing
It was green across the board for US Stock market indexes at the close on Wednesday, with most S&P 500 names ending higher, adding 38 points (0.6%) to 6,881 overall. At the GICS sector level, energy led gains, followed by technology and consumer discretionary, while utilities and real estate posted the largest losses.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.