Trading – Back to Basics

There are many times in a traders career where he or she will get to a point where they realise that they are using all sorts of complex and elaborate systems to get in and out of trades only to find that nothing is working or that it takes too much time and effort to do all the analysis. Having too much knowledge and expertise is not necessarily a good thing in trading, one can get something called ‘analysis paralysis’ where you just confuse yourself with all the knowledge you have and end up doing nothing.

Unfortunately, I’ve allowed this to happen to me over the last two weeks.. I’ve been away on holiday where I had very poor Internet connections so I spent quite a bit of time reading up on some new trading material that I had got through Amazon. Each of the books I read came with glowing recommendations and I kept on having ah-ha moments whilst reading them. However, when I got back, I just felt stuck with trading. I wasn’t sure which trading methodology to use and what I read on holiday (which made perfect sense when reading) was not backed up by my own testing and analysis. As a result, I just got confused and put on some pretty poor trades which just lead to more frustration.

Anyway, I took a few days off to clear my brain to ‘go back to basics’ in which I just look at price action and support/resistance lines on a chart.

The Crude Oil trade which I took today explains this:

An uptrend is defined when you get a series of higher-highs and higher-lows in a chart, a downtrend in the opposite. So, from the chart you can see that I get a series of higher lows indicating an uptrend. I am also getting higher highs except the last high (if I had spotted this, I may not have traded this by the way – I was more excited about seeing the higher lows). I went long when a low was made.. from the candlestick patter, I saw an inside bar in the 1 hour chart which indicates indecision. This means that we could potentially see a reversal which would indicate that this would be the swing low of the price movement. I went long on the break above the high of the inside bar and was looking to take the price up to the top of the previous highs around 9500.

This worked out nicely, as the market went and hit my limit for 85 points. However, the price action has now gone through resistance which would have been another 100 points for me but I’ve made some good profit.

Trading can be simple at times, you just have to watch what the price is doing and trade accordingly. Make sure you trade according to what you see and not what you think will happen.

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Category: Trading