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 holds around 1.1750 after weak German and EU PMI data
EUR/USD maintains its range trade at around 1.1750 in European trading on Tuesday. Weaker-than-expected December PMI data from Germany and the Eurozone make it difficult for the Euro to find demand, while investors refrain from taking large USD positions ahead of key employment data.
GBP/USD climbs above 1.3400 after upbeat UK PMI data
GBP/USD gains traction and trades in positive territory above 1.3400 on Tuesday as the British Pound benefits from upbeat PMI data. Later in the day, crucial data releases from the US, including Nonfarm Payrolls, Retail Sales and PMI, could trigger the next big action in the pair.
Japanese Yen seems poised to appreciate further; awaits BoJ decision on Friday
The Japanese Yen maintains its bid tone through the first half of the European session on Tuesday which, along with a bearish US Dollar, keeps the USD/JPY pair depressed below the 155.00 psychological mark. The growing acceptance that the Bank of Japan will raise interest rates this week turns out to be a key factor behind the safe-haven JPY's outperformance.
Editors’ Picks
US Dollar weakens after mixed Nonfarm Payrolls data – LIVE
The US Bureau of Labor Statistics announced on Tuesday that Nonfarm Payrolls (NFP) rose by 64,000 in November. The report also showed that NFP declined by 105,000 in October, while the Unemployment Rate rose to 4.6% in November, causing the US Dollar to come under renewed bearish pressure.
EUR/USD holds around 1.1750 after weak German and EU PMI data
EUR/USD maintains its range trade at around 1.1750 in European trading on Tuesday. Weaker-than-expected December PMI data from Germany and the Eurozone make it difficult for the Euro to find demand, while investors refrain from taking large USD positions ahead of key employment data.
GBP/USD climbs above 1.3400 after upbeat UK PMI data
GBP/USD gains traction and trades in positive territory above 1.3400 on Tuesday as the British Pound benefits from upbeat PMI data. Later in the day, crucial data releases from the US, including Nonfarm Payrolls, Retail Sales and PMI, could trigger the next big action in the pair.
Gold retreats from seven week highs on profit-taking; all eyes on US NFP release
Gold price loses momentum below $4,300 during the early European trading hours on Tuesday, pressured by some profit-taking and weak long liquidation from the shorter-term futures traders. Furthermore, optimism around Ukraine peace talks could weigh on the safe-haven asset like Gold.
Ukraine-Russia in the spotlight once again
Since the start of the week, gold’s price has moved lower, but has yet to erase the gains made last week. In today’s report we intend to focus on the newest round of peace talks between Russia and Ukraine, whilst noting the release of the US Employment data later on day and end our report with an update in regards to the tensions brewing in Venezuela.
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