When an unsettling news comes down the pike, traders tighten his mind, his soul and his entire being to make profits and take money out of the market. So, there is a theory pointing out that market prices reflect all available market information. It is called the efficient market theory.
In the efficient market theory, people buy and sell on the basis of their knowledge, so the latest price represents everything known about the market. Since everyone has the same information about market, the price should reflect the knowledge and expectations of everyone. Therefore no one should be able to beat the market since there is no way to know something about market that is not already reflected in the market’s price.
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Trends is valid only the time frame they occur. Chart patterns in time frames larger and smaller than the current trend are independent. This inter-relationship applies all the way from 1-minute through yearly chart analysis.
That’s why traders must always operate within various time frames. The most profitable positions will align to support and resistance on the chart one amplitude above the trade and display low risk entry points on the chart one amplitude below.
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Chart patterns that offer trading opportunities form equally through all time frames. The setups remain valid in chart of every time frame, whether they appear on 5-minute or monthly bars.
Each time frame attracts a specialized group of traders that interacts with all other groups through the universal mechanics of greed and fear. This results in trend convergence, divergence through different time lengths. Successful traders improve performance when they adjust their chart view to match the chosen holding period.
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Generally, periods of trending market last a relatively short time in relation to longer sideways market. But rather than stand aside, many traders think they are seeing trends where the market are not trending.
In trending market, fast-moving stock’s prices attract attention and awaken great excitement. Many novice traders fever with these hot plays. The financial press makes these more danger with frantic reporting of big gainers and losers. But gaining profits by momentum trading requires great skill and discipline.
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Prices often move in channels, when prices rally, they often seem to stop at an invisible ceiling. Also, when they fall, they often seem to hit an invisible floor as well. Traders can use channels to identify buying and selling opportunities and avoid bad trades.
Channels help traders because their boundaries show where to expect support or resistance to come into the market.
Support is where buyers buy with greater intensity than sellers sell. Resistance is, in vice versa, where sellers sell with greater intensity than buyers buy. Channels show where to expect support and resistance in the future.
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Once you have designed all of components the strategy, you may then want to test it. In order to test a strategy, you have to test each part by adding it to the strategy one at a time, to see if there is improvement and, if so, how much.
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The only purpose for using Stops is to protect your capital. They are used either to cut losses or to protect profits. Stops are usually based on some dollar figure rather than a market indicator or price pattern.
A characteristic that stops share with exits is they force the strategy out of the market, which then requires a re-entry. We should give this re-entry caused from stops the same thought and attention that you would give a re-entry for exits.
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| Quote | Last | Change |
|---|---|---|
| ^DJI | 10467.16 | -30.72 |
| ^IXIC | 2251.69 | 0.00 |
| ^FTSE | 5287.42 | -26.53 |
| ^GDAXI | 6108.76 | -25.94 |
| ^FCHI | 3622.33 | -29.58 |
| ^N225 | 9537.3 | -158.72 |
| ^HSI | 21029.811 | -64.01 |
| ^STI | 2987.70 | -9.95 |
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