Brandon Wendell, CMT
Brandon Wendell
New traders often get confused when deciding what tools to use in order to analyze the markets and select trading opportunities. Looking at the selections available as well as the tools offered in today’s advanced trading software, it is easy for one to become overwhelmed. Fortunately, there is a simple and logistical way to sort through the market ebbs and flows and identify the highest probability, lowest risk trading opportunities.
When we are planning to trade, we need to start from the top. It does not matter if you are holding for 10 minutes, 10 days, or 10 weeks. The broad markets always have influence over the stocks making up their components. I have seen this hold true for markets in the U.S., India, London, Dubai, and Singapore. We need to establish the trend and potential turning points (supply & demand), of the broad market before we look to our individual stocks. Most stocks will move further and faster with the market’s trend than when they are fighting it. Of course, there are always exceptions. However, even when the stock is trending opposite of the market, they will often reach supply and/or demand at nearly the same time.
Once we know what the market is likely to do during the timeframe we are trading, it is important to look at the stock to find the current trend. We want to know the direction of the trend, the strength of the trend, and the possible turning points in that trend (again supply and demand). By looking at the price and volume, a trader gains most of the knowledge they need to trade without the added use of any indicators. You can ascertain the trend direction and strength by observing the color, size, and shape of the candles themselves with volume as a supporting indicator. Looking at the past price action, a trader can also see the most probable turning points or entry and exit targets from supply and demand.
For those of you who are not familiar or comfortable with reading price and volume, I suggest you visit your local Online Trading Academy center and take one of our courses that will give you this knowledge. For added information regarding strength of the trend and confirming weakness at turning points, you can use a momentum indicator such as ADX or MACD. Even multiple moving averages offer a clue to a trader looking to determine trend strength. Just remember that you need to rely on price itself to make your entries and exits. Relying on the indicators makes you late as they are all lagging in their movement and signals.
When looking at the possible turning points of price, we can also look at the condition of oscillators like Stochastics, RCI, CCI and others. You have to use them in the correct manner however. Trying to take all buy and sell signals given by them will not only make your crazy, it will also drain your account. They are to be used to confirm decisions made on price action. Stocks will remain overbought or oversold for a long time in a strong trend. What you need to look for are clues that there is a change in sentiment and price action at a previously identified supply or demand zone.
Overall, your trading decisions need to be centered on identifying trends and supply and demand zones of the broad market and your stock. The technical indicators are decision support tools and may not even be necessary once you become adept at reading price.
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 weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Editors’ Picks
EUR/USD weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
Gold sticks to modest losses above $5,000 ahead of US data
Gold sticks to modest intraday losses through the first half of the European session, though it holds comfortably above the $5,000 psychological mark and the daily swing low. The outcome of Japan's snap election on Sunday removes political uncertainty, which along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood. This turns out to be a key factor exerting downward pressure on the safe-haven precious metal.
Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals
Bitcoin Cash trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.
Follow the money, what USD/JPY in Tokyo is really telling you
Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.
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