Virtual Trading for the Virtual
There are of course exceptions to trading rules
regarding trading with higher swing-highs and lower swing-lows.
At times, you will come across a price bar which makes neither
a higher-high or lower-low. This is called an Inside Bar. These
you must treat differently, and require waiting for the bars
to follow before continuing your line.
At times, you will come across a price bar that makes both
a higher high and lower low. This is called an Outside Bar.
Here, two swings are forming in short order. Usually, the swing
has occurred first during the forming of the bar before the
outside bar. But this will not be obvious looking at the price
chart because the bar before the outside bar will not have a
lower low or higher high than the outside bar itself. The trick
here is to note the intra day pattern to determine whether the
outside bar formed its bottom or top first.
For example, say price bars have been making a series of lower highs and
lower lows. We then get a price bar making both a higher high
and lower low. Do we draw our line to the lower low first, then
up to the new higher high? Or do we draw our line from the low
of the price bar before the outside bar to the high of the outside
bar, and then back down to the low? It all depends on which
way price actually went from the close of the previous price
bar, does it not?
However, by looking at intra day prices for both price bars, you
can quickly tell where the actual swing occurred and whether
the outside high or low formed first. Then you can continue
your line from there. One quick way is to simply note which
way price moves after the outside price bar. If the next bar
makes a higher high, it is likely that the outside bar’s low
formed first with the high last. If the next bar makes a lower
low instead, you then can assume the outside bar’s high formed
first, then it’s low.
Now, once you have constructed your swing chart, and can see
swing-bottoms and swing-tops which you did not know existed
before, you are ready to apply some of those price methods mentioned
earlier to these swing tops and bottoms. Ratios can be applied
using the large as well as the small ranges created by these
swing tops and bottoms. You are on your way in getting more
information out of your price charts than you may have previously.
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Stacking the Odds in Your Favor
Being profitable in the high-risk (high profit potential) business
of virtual online
commodity trading which requires hard work. So many trader
websites advertise their trading services as a simple way to
make lots of money, which has been the downfall of many new
trading careers. There exists a few (very few) trading programs
on the market which instruct you when to enter and exit a market
position with good annual percentage gains on investment. They
require a large initial capital base and will also often experience
large account equity drawdown from time-to-time.
Most new futures markets
traders do not fit the requirements necessary to trade the commodities,
stock or futures markets this way. Thus, they must learn to
make their own trading decisions in the hopes of increasing
their small market position. These are called “discretionary
traders.” Many desire to trade this way even if they have the
capital funding to trade using a trading program. Because discretionary
trading requires that the trader make all the entry and exit
decisions, work must be done to reap rewards from this type
A trading plan is a good start for any discretionary trader.
Trading plans are very important for
Forex market traders, where profit & loss potential
is high, as is leverage and trading account margin! FX Forex
traders need to follow a set of personal trading rules so each
trade is not merely some act of chance. Trading based on luck
is no better than casino gambling, which futures trading is
certainly not meant to be.
Success at profitable stock market trading or
profitable forex futures and
commodity futures trading is not a mere roll of the dice
based mostly on luck, where you have a 50/50 or even less chance
of success in a casino gambling game. It's more like a merchant
of a clothing store that must make fashion decisions each quarter,
and if his insight into the market is a good one, profits will
be made by the sales of his inventory.
However, a bad business decision and he is left with a rack
filled with clothing nobody wants and a financial loss. His
success depends on properly analyzing the market environment
and acting accordingly. Trading is the same.
As a discretionary trader, the task is to stack the odds in
your favor for any given trade consideration. The power to do
this is in every trader’s hands. Do the job well, and you will
be rewarded. Try to take shortcuts due to time restraints or
laziness, and the outcome may be very disappointing. So how
might a discretionary trader stack the odds in his or her favor?
That is what we will now discuss.
See The Big Picture
Many new traders simply want to trade quickly and often. The
desire to make quick money plagues many who enter this arena
for the first time. In addition, they find little time to evaluate
their approach to trading before jumping from one method to
another. And the sad thing is, they may have come across a method
that has helped many before them, but they were passing through
at the speed of light and did not get the gist of it before
moving on to something worthless and costly. I have seen this
happen much too often.
Discretionary traders need to understand that time and study
is very important if to ever achieve a good trading approach.
So many common sense approaches are ignored for the quick and
dirty buck. One such approach is simply to see the big picture.
This author has written several articles relating to this very
subject, and for good reason. It is not only a smart thing to
do; it is also something most forget or are too lazy to do.
Market patterns and trends go beyond the simple daily price
charts. They exist on weekly, monthly and yearly price charts
as well. An up trend on a daily chart may exist only as a one-bar
rally but a weekly chart shows a strong downward direction!
And this weekly move may exist only as a bull trend pullback
on a monthly chart. If you only focus on a daily price chart
to base your trading decision on, you could be entering a market
trending strong against your position.
Therefore, the wise thing to do regardless of the method you
choose to use in trading is to start with the larger time frame
(such as the monthly price chart) and work your way down to
the daily or even intra-day time frames.
A good example of this is the use of a daily time reversal
date. If a trader simply looks to enter a trade based on a daily
reversal date, it may end up as a quick blip on the daily price
charts in favor of the stronger trend long-term.
Trading small reversal blips are certainly not the way to go,
unless you are a scalper, forex markets day trader, or in to
euro day trading. To
stack the profitable trading odds in your favor, you will want
to discern first the long-term direction (i.e., Monthly chart),
then note the medium-term direction (i.e. Weekly chart), and
if both are in agreement in direction, look to the daily price
chart to time an entry in the same direction as your long and
Keep in mind the long-term trend will often have more power
vs the medium-term trend, just as the medium & long-term
trend will carry more weight than the short-term or daily price
trend. As a trader looking to stack the odds in your favor,
you want to get the heavy-weights on your side before getting
into the ring.
The quick way for those with limited time on their hands to
determine the likely market trend is to use a trendline. Draw
it under major swing bottoms or across major swing tops on the
monthly, weekly and daily price charts to see the dominant trend
For those who wisely take more time at doing this, it's best
to look closely at the different time frame charts and note
whether it shows higher swing bottoms (for an up-trend), or
lower swing tops and bottoms for a down-trend. Learn to draw
swing charts (one book on this subject is called “Pattern, Price
and Time” by J. A. Hyerczyk), which immediately gives you a
birds eye view of the trend direction.
If your monthly bar-chart trend is up, plus your weekly trend is
up, then when you come across a daily swing bottom forming (especially
on an expected reversal date and support price) higher than
the previous daily swing bottom, you have a very powerful
buy signal to go long and looking for an up-trending bullish market
to start soon.