Posted by forex at 3:13 AM
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1. Decide on a trade's holding period, or how long the stock will be held before being traded. Based on the trader's knowledge, expertise and resources, a trade's turnaround time can be longer or shorter. The less time it takes for a trade to complete, the more intense and demanding it is for the trader. Scalpers and day traders finish their trades within hours or in a day or so, while position holders may keep a trade for a few days.
2. Suppose the holding period is in days. Choose the daily price chart and investigate the price pattern of the chart. A daily price chart has the same time frame as the intended holding period for the trade. Adjusting chart view from one time frame to another to match the chosen holding period enables a trader to better gauge the trade's price performance along the same time line. Price pattern concerns trend lines--is the price moving on an uptrend or a downtrend? Suppose there have been new highs but no new lows; that suggests the price is moving upward.
3. Enter the trade in the price chart with a time frame that is less than the holding period. Any trend analysis is about prediction rather than certainty and trading without protection leads to losses if a prediction goes wrong. Price may appear to be moving up on the daily chart, but on a chart with a shorter time frame, such as 30 minutes, price may have been heading down at times. Entering the trade at a low price point provides both a margin of safety and a potentially larger profit.