Discover Paul Lemal’s shocking Momentum Trading System that can make you rich in 45 days. Read the story of Richard Samuels, a post office mailman with a head injury and how he made a fortune with these Neutrino Forex Signals. Master these Candlestick Patterns with this 82 page PDF FREE Candlestick Guide plus discover DecisionBar Trading Software! Les Schwartz: While the charts use my DecisionBar software to illustrate certain points, the concepts discussed are universal. They work for stocks, futures, forex or any true market. Also, keep in mind that these concepts are just as valid for day traders as they are for those in longer term trades. The only difference is that day traders must also think in terms of the time left in their trading session when evaluating trades. Trading systems don’t work. If you approach DecisionBar, or any software that generates signals, as some kind of Holy Grail system where all you have to do is follow the signals, you are in for a rude awakening.
The key to being a winning trader is not being smarter than the next guy, or even more experienced than the next guy. The key is being willing to work harder than the next guy. This means you always have to plan ahead. When you enter a trade, you have to look at more than the trading signals. You have to look at the entire chart and “Map Out Your Trade.” We call our software DecisionBar because the signals identify decision points. They are not simply buy and sell signals.
Here is a recent daily chart of Dean Foods (DF). Let’s look at that Long Exhaustion signal at point “A.” An Exhaustion Signal in DecisionBar indicates that the previous move likely has run its course. It is “Exhausted.” In this case the downward move signaled by the Short Exhaustion and Short Breakout signals may have run its course, and a long trade is a possibility.
Before we enter this trade we want to get a feel for the forces acting on the market and the possible scenarios this trade might take. We note that the market currently has support at the current pivot level indicated by “B.” The market will also likely encounter resistance at the previously broken support level indicated by the pivot at “C.”
If the market overcomes resistance at level “C,” it then may well encounter resistance at previous resistance level “D.” Our ultimate goal is to test and possible overcome resistance at the current pivot level “E.” I like to draw horizontal lines extending previous support and resistance levels (even though DecisionBar will issue a “Possible Reversal” signal if the market stalls at these levels.)
Now we have a “Map” of our trade, and we can figure our risk/reward scenario. Our built-in risk is the distance from our entry point to Level “B.” If the market drops below support level “B” we would exit our trade at a loss. Additionally, we recognize that our first hurdle is to overcome resistance at Level “C.”
If we can overcome resistance at Level “C” we will have a winning trade, as the market will likely test resistance at Level “D.” Ultimately, moving up to Level “E” is our goal, but there is a lot of resistance between here and there.
Here is how the trade played out. When DF’s upward motion stalls at Level “C,” we know exactly what is going on. We expected this and we don’t panic. DecisionBar even issues a reversal warning to let us know the market has stalled at a previous support/resistance level. Once DF overcomes resistance at Level “C” it shoots right up to resistance at level “D.”
Once again the move stalls and a reversal warning is given. Ultimately a Short Failure signal (the market “Failed” to overcome resistance) is generated. This trade is over. While we didn’t reach our ultimate goal, the trade went as planned. Whenever you consider entering a trade, it is imperative that you identify the forces working on the market and that you “Map Out Your Trade.” When you do this, and you understand the forces working on the market, charts will no longer look random to you and you will see the markets often move just as you anticipated. This “vision” is what separates winners from losers.
