Jay Meisler's Common Sense Trading Tips - Part 4

This is the final installment of my 20 common sense trading tips. As with any trading informational presentation (e.g. article, webinar, video, etc), if you come away with one thing that helps you trade, it should be a valuable use of your time. I expect, or at least hope, that you will walk away with more than one useful addition to your trading toolbox from this 4 part series. Read on as there is some common sense gens in this final installment.

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16. Identify the Market and Adjust Your Strategies Accordingly

While you never know when a market going sideways will turn into a trending market, hitting your head against a wall and betting on breakouts can be painful to your account.

I prefer to try and identify the market we are trading in (i.e. trend, ranges, consolidation, congestion), what side is most at risk, and adjust my strategies accordingly. It pays to stay alert but I prefer to take what the market will give more than what I hope it will give.

This is a skill you can develop over time and one you should put into your trader’s toolbox.

Tip: You do not want to be playing a range on a breakout day nor do you want to play for a breakout on a day when the market is stuck in ranges.

17. Path of Least Resistance

This is one of my favorite tips for if you can identify the path of least resistance then it is just a matter of placing a stop at a level that will give your trade time to work.

Markets are like a river flowing downstream constantly looking for the path of least resistance. When if finds a clear path the pace of flow accelerates. This is why the forex market focus will shift from currency to currency, always looking for the weak (or strong) spot and the path of least resistance.

This is a way to look at trading. Traders will probe the weak spot looking for the path of least resistance. If it leads to technical levels being breached, a market will keep pushing in that direction.

Alternatively, if a level holds, traders will lose some interest in that side and look for a new victim. It is like the forex market is like a merry-go-round, moving from currency to currency probing for a vulnerability.

Tip: It is easier to trade the path pf least resistance rather than looking for a low top or bottom until there is a reason to do so.

18: Beware of Tight Ranges

When in narrow ranges, small price moves can have an exaggerated look on charts and on your emotional sentiment,.

For example, if the EURUSD is stuck in a 25-pip range, a 10-pip move (up or down) can look like a huge move on charts. This, in turn, can trigger an emotional response and have you buying a top or selling a bottom looking for a breakout.

As ranges narrow they are usually setup for a breakout move on one side or the other but while within them, you have to guard against getting chopped up by reacting to small moves that look like large ones on your charts.

Tip: Be aware of the emotional impact when you look at charts and see what looks like a big move within a narrow range.

19 Stick to Your time frame: Don’t Think Like a Position Trader and Trade Like a Spot Trader.

This is a trap many fall into and just about all of us have experienced this at one time or another.

What I mean by this is entering a short-term trade based on a longer-term bias without support for the trade on short-term charts.

An example is buying into a dip knowing that it won’t last (i.e. longer-term view) but then getting stopped out when the market overshoots your stop to the downside.

Another example is buying or selling just because a currency looks too low or high based on a longer-term view, ignoring the shorter-term technicals and current risk in the market.

It does not mean you cannot use different time frames in your analysis to gauge the overall risk in the market. However, you need to be e careful mixing time frames when trading (e.g. thinking in terms of a daily chart and trading based on a 5-minute time frame). In other words, don’t think like a position trader and trade like a spot trader (or vice versa).,

Tip: Remember, markets can remain illogical longer than we can remain solvent,” according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe…Gartman’s 20 Trading Tools…

20. Trading the Strong Side but Don’t Leave Yourself at the Mercy of the Market.

I have said many times that more than half the battle in becoming a successful trader, no matter what market you are in, is to pick the strong side to trade.

When you trade on the strong side, there are better odds your trade will work out and a better chance of seeing the market come back to you even if your entry level is not timed right.

A key to trading is staying power, which increases when you are on the side least likely to see your stops get triggered. There is no guarantee your trade will work out as planned but it allows your trade more time to work..

There are various ways to determine the strong side (always keeping in mind the broader trends).

One way is to identify the side where there is a smaller risk of stops being run against your position.

By contrast, the weak side as the one where stops are at a greater risk of being run, suggesting you may have to exit your position if the market moves against you.

There is another aspect to avoid being at the mercy of the market when time is a factor.

What I mean by this is to be aware of upcoming key events where the prudent trade is to be flat. In these cases, you need to look ahead if you plan to evit your positions before a key event, such as a data release. Otherwise, you may find yourself and your positions at the mercy of a market looking to adjust positions (e.g. book squaring) ahead of the key event.

Tip: This does not mean you cannot trade or position in anticipation of a key event but you need to plan ahead so you are not subject to the whims of a thinning market. The same holds true ahead of a weekend if you do not plan to run a trade over this period.

Jay Meisler’s Common Sense Trading Tips – Part 1

Jay Meisler’s Common Sense Trading Tips – Part 2

Jay Meisler’s Common Sense Trading Tips – Part 3