Category Archives: Trading Tips

General trading tips and techniques

Volume and Breakouts – Is it Necessary? | 11th August, 2017

This chart was published two days ago. At that time, it was warned that the possible upwards breakout of the 8th of August lacked support from volume and may turn out to be false:

S&P500 Daily 2017
Click chart to enlarge.

That was proven correct. The strong downwards movement from the S&P comes on a day with an increase in volume. This is a classic downwards breakout.

When a downwards breakout has support from volume, that adds confidence in it. Downwards breakouts do not require support from volume; the market may fall of its own weight. Price can fall due to an absence of buyers as easily as it can from an increase in activity of sellers. But when volume supports downwards movement, it may be more sustainable, at least for the short term.

This downwards breakout was predicted by strongest volume during the consolidation being a downwards day.

This volume analysis technique looks at the presence or absence of support from volume on the breakout after a consolidation period to tells us how reliable the breakout may be.

Original post published @ 12:17 a.m. EST on 12th August, 2017, on Elliott Wave Gold.

Volume and Breakouts – Is it Necessary? | 9th August, 2017

After a consolidation price will break out. The presence or absence of support from volume on the breakout tells us how reliable the breakout may be.

Gold Daily 2017
Click chart to enlarge.

Pennant patterns are one of the most reliable continuation patterns. But in an upwards trend the breakout should have support from volume.

For price to keep rising it requires increased activity of buyers. Upwards breakouts that do not have support from volume are suspicious.

This upwards breakout comes on a day with slightly higher volume, but the balance of volume for the session is downwards. Stronger volume during the session supported downwards movement, not upwards.

The breakout is suspicious and may turn out to be false.

While volume is important for upwards breakouts, it is not so important for downwards breakouts. The market may fall of its own weight.

Original post published @ 04:47 p.m. EST on Elliott Wave Gold.

Non Farm Payroll – What Direction for the S&P500? | 3rd August, 2017

A simple classic technical analysis pattern may answer the question of what direction to expect tomorrow from the S&P500 upon release of Non Farm Payroll data. This release is expected to move markets strongly:.

Gold Daily 2017
Click chart to enlarge.

Pennants are reliable continuation patterns. The pattern is supported if volume declines as the pattern forms. Pennants normally appear about halfway within a trend.

The measured rule takes the flag pole which precedes the pattern and adds that length to the expected breakout of the pattern.

If this pattern is correct, then tomorrow may see an upwards breakout to new all time highs for the S&P500.

Original post published @ 06:28 a.m. EST on Elliott Wave Gold.

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Top 5 Risk Management Tips

Your survival as a trader depends on how you manage risk. The single most important aspect of trading is risk management.

Risk management is boring, overlooked by newbies, and ignored by the greedy. Greed without risk management will wipe out your account. The fact is traders have losses, even the most experienced traders. The difference between newbies and experienced traders is how they manage those losses.

If you are new to trading and you read only one thing on this website, then it should be this. The importance cannot be overstated.

Here’s a Fibonacci 5 risk management techniques:

1. Never ever risk more than 3-5% of equity on any one trade.

This rule ensures that with a series of 10 losses in a row a traders account will still have sufficient equity to be able to continue trading. While a series of 10 losses in a row is never expected and never a goal, it is a worst case scenario that must be considered. Would your account survive it?

2. Always use a stop loss.

What would the market have to do to prove you wrong? What is it that you think the market cannot do? Set your stop loss accordingly. Stops could be set just beyond Elliott wave invalidation points, just beyond an important prior high or low, using a trend line or a moving average.

Stop losses should be an order but may also be mental. If using a mental stop loss, the trader must have exceptional discipline to execute it at exactly the time emotion will be against you.

3. Exit a trade as soon as you recognise it has gone wrong.

Sometimes this happens before a stop loss is triggered. Sometimes market behaviour is not what you expected. This may be in terms of wave structure, volatility or anything that looks wrong. If it looks wrong and isn’t what you expected, then exit the trade promptly.

4. Don’t meet margin calls.

Experienced traders view margin calls as an objective indication that the trade has gone wrong. It it gets this bad, stop throwing good money at it!

5. Adjust position size to meet rule 1.

The importance of rule 1 cannot be overstated. Rule 5 really is a repeat of rule 1. Never ever risk more than 3-5% of your equity on any one trade. In order to keep this rule then of course a stop loss order must be used, otherwise potential risk is 100% of your equity. So really, rules 1, 2 and 5 are all the same.

When calculating equity take the value of your account minus all potential losses on all open positions. That is available equity for the next trade. Calculate 3-5% of this number and you have the amount which may be risked on the next trade.

Calculate the potential loss for a trade from the open price to the stop loss price (most trading platforms will do this for you). To keep this potential loss within 3-5% of equity adjust the size of your position.

Finally, one extra tip which is one of my personal favourites. When a position becomes reasonably profitable move your stop loss to break even or just beyond to protect a very small profit. In this way I have turned a series of potential losses into a series of tiny profits, finally getting a position that “sticks” to ride a trend. It may mean I have more tries at entering a trend than traders who can handle the pain of holding a losing trade for longer, but it does mean I sleep easier at night.

Experienced members are encouraged to add their own tips in comments below. Maybe you think there’s a really great tip I’ve not mentioned? Or maybe you think one of these tips could be said differently?

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** The prices you see on the MotiveWave website are regular prices, but you will see the special 20% off Summer Sale discount applied during the purchase process before you are asked to pay. If, for some reason, you do not see the discount on the checkout page, please contact MotiveWave before purchasing and before the end of the sale.