How to place live trades skilfully
When you want to place a trade in the live market, you
should look at three things sequentially. These are:
- The
Trend.
- Area
of Value.
- Entry
Signal.
Spotting the Trend
You can spot a trend by just looking at the charts or using
a moving average like the 50 period simple moving average.
Area of Value
An area of value can be:
- A
support level.
- A
resistance level.
- A
moving average.
- A.
trend line.
- A
divergence area.
Entry Signal
An entry reason can be a candlestick pattern or shape like
an engulfing pattern or a pin bar.
Placing the Trades
First, the image above shows an uptrend.
In the GBPUSD example above, you can see that the green zone
was resistance level at first, then became a support level afterwards, which moved
the price up.
This can be considered as an area of value.
After spotting that area of value, you will now look for an
entry reason.
In this case, you can see a bullish engulfing pattern which
would trigger you to buy.
Apart from support and resistance, another area of value can
be a Moving Average or a Trendline.
Also, in the example above you can see that the price is
bouncing of a moving average and the trendline.
When the price goes to the Moving Average again, or the
Trendline, the two would be areas or value because we expect the price to
bounce off again.
A hammer candle or a bullish engulfing pattern would be an
entry reason to buy.
Divergence
Let’s now look at divergence.
Divergence is used to trade Trend Reversals.
Divergence is whereby the trend in the forex chart,
conflicts with the trend in the RSI indicator.
As you can see in this GBPUSD
example above, the pair at first is in a downtrend, forming lower lows and
lower highs.
But at a certain point in
that downtrend in the chart, the RSI indicator starts to form an uptrend,
forming higher lows and higher highs.
That is considered as a
divergence.
You can see that after that
divergence, the pairs reverses from a downtrend to form an uptrend.
In the example below, you can
see that EURUSD is in a downtrend.
That green resistance level, is an area of value and the
entry signal to sell the pair would be that bearish engulfing pattern.
How to exit live trades
We already said that when you enter in a trade, you don’t
let it run forever.
A trade is exited through either a Take Profit or a Stop
Loss order.
If you have bought, the best place to set your Take Profit
Level is slightly below a resistance level.
This is because you want to exit the trade before there is
resistance, which can push the price down.
For the stop loss, set it below the support level so as to
not get stopped out before the price is pushed up by the support level.
If you have sold, the best place to set your Take Profit
level is slightly above a support level.
This is because you want to exit the trade before there is
support, which can push the price up.
For the Stop Loss, set it above a resistance level so as not
to get stopped out before the price is pushed down by the resistance level.
Also, always ensure that the risk to reward ratio is more
than 1:1.
