Trading 101

Article #5: 3 Easy trading approaches

The markets are a strange and fascinating place, but for a beginner, they can be a harsh and filled with misunderstandings. In this article, I would like to present to all the beginners or to people still searching their way in the chaotic and at the same time the tidy world of financial markets 3 trading approaches that are easy to grasp that will give you a head start in the trading world. Without further ado lets’ jump on that train and see where it takes us.

• Approach #1:

Many beginners think that the markets are too difficult to understand or it is not possible to make profits in the long term. This is the first lie they are telling themselves. Yes — markets are tough sometimes, but definitely not hard to understand and long-term profitability comes with practice and experience. The chart itself can give you enough to be profitable, without even putting those fancy indicators or strange formations with animals’ names, which will only deviate you from your path and will make your chart even harder to read. So keep it simple and use the price action to your advantage. This is the first approach and if you follow it correctly — you should be able to extract profits from the market. Simplicity is the key for better understanding the markets. Look at the current sentiment (what other traders think about a certain currency pair or other instruments) and follow the flow. If the traders support and Buy the USD against some other currency — you should too and vice versa. Keep in mind to include time here, meaning that if the upward movement on the H4 chart, for example, has started a few days ago — stay away from that market. Look for clean moves — 3 bullish candles usually are followed by at least 1 or 2 more. Same goes for the short side — 3 bearish candles usually are followed by at least 1 or 2 more. Keep in mind that there should not be interruptions between the candles meaning that 2 bullish candles + 1 bearish candle is not a good spot, even if the market continues to go up after that.

• Approach #2:

The second approach is connected with Higher Highs and Lower Lows. As defined when the price is trending either up or down it makes either Higher Highs + Higher Lows (for an uptrend) or Lower Lows + Lower Highs (for a downtrend). By defining those levels you can use them to your advantage for a continuation of the trend. A break of the last High (for an uptrend) or a break of the last Low (for a downtrend) can be used as a signal that the trend will continue and for you — a signal to make some profits. Keep in mind to use those levels carefully and to not place too many lines on your chart — again keep it simple, let the price move unfold and then place a level. This approach can be used on all time frames, but usually works best on the higher ones. Go for it and test it and you will see that it actually can wield some nice profits for you. And remember — don’t risk any money until you have proven to yourself that you can make more profits than losses.

• Approach #3:

For the purpose of keeping it simple, the last approach is connected with the different time frames. As you probably already know you can see how the market behaved on different time frames, where each candle represents a certain period of time. What you as a beginner probably don’t know yet is that the higher time frames are “priority” ones, meaning that even if we have a short downtrend on the 1-hour time frame, the overall trend can be an uptrend defined by the Daily timeframe for example. What you can do is define the overall trend on a higher time frame and then just go down to a lot lower time frame and try to catch the reversal. Let me break that:

Daily Timeframe: Uptrend
1-hour Timeframe: Downtrend for the past 4 hours

In this case, you can try and Buy the instrument with the idea that the overall trend is up. Just be very cautious where you place your Stop Loss as the reversal might not happen immediately.

Well, this is it from me. I hope it will be helpful for you to start off your trading career or at least to gain some additional profits. Test the 3 approaches on a demo account and do some backtesting before you jump on the markets with a real money investment. You can always add additional tools to each of the approaches if it helps you to better understand the market and squeeze profits. Good luck to everyone and don’t give up!

Written by Iliyan Iliev

06.04.2018