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V.10:6 (279-282): Identifying Trading Opportunities by Thom Hartle
V.10:6 (279-282): Identifying Trading Opportunities by Thom Hartle
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Identifying Trading Opportunities
by Thom Hartle
One of the most important aspects of any trade is timing the entry. Perhaps surprisingly, daily and weekly analysis can be instrumental in planning an entry for long-term trades. Here's an overview on how to use daily and weekly technical analysis to identify trading opportunities that may only come up once a year. S&C Editor Thom Hartle outlines a complete approach to trading, incorporating basic charting and trendline plotting, the stochastics oscillator and momentum studies.
Over the years, my trading style has evolved out of necessity. What could possibly cause anyone to alter his or her trading approach? Losses, of course! It's easy to avoid losses don't trade. But that approach is too extreme for me, and it doesn't meet my other goals. Thus, the challenge for me is to identify situations that offer the best opportunity for making money with the least amount of risk.
My early reading of the literature of technical analysis revealed that the trading concept stressed most often was trend following. The literature was and is full of charts showing beautiful trends with simple moving averages plotted over the prices. It looked easy until I faced the problem of getting on board the trend. First, there was the possibility that the trend had been in force for some time and a consolidation or reversal of the trend could occur. Second, there was another possibility. The market could stay in a trading range for some time. If that happened, each position taken with each false trend indication would result in an equity drawdown.
Moreover, simply acting on trading signals didn't work for me; I needed additional filters to reduce the number of false trades. The technique that helped me the most had very little to do with trend following a return to basic chart analysis. I decided to outline my methodology for approaching a trade using basic chart analysis and additional trading techniques applied to the bond market.
One of the most important aspects of any trade is timing the entry. Perhaps surprisingly, daily and weekly analysis can be instrumental in planning an entry for long-term trades. Here's an overview on how to use daily and weekly technical analysis to identify trading opportunities that may only come up once a year. S&C Editor Thom Hartle outlines a complete approach to trading, incorporating basic charting and trendline plotting, the stochastics oscillator and momentum studies.
Over the years, my trading style has evolved out of necessity. What could possibly cause anyone to alter his or her trading approach? Losses, of course! It's easy to avoid losses don't trade. But that approach is too extreme for me, and it doesn't meet my other goals. Thus, the challenge for me is to identify situations that offer the best opportunity for making money with the least amount of risk.
My early reading of the literature of technical analysis revealed that the trading concept stressed most often was trend following. The literature was and is full of charts showing beautiful trends with simple moving averages plotted over the prices. It looked easy until I faced the problem of getting on board the trend. First, there was the possibility that the trend had been in force for some time and a consolidation or reversal of the trend could occur. Second, there was another possibility. The market could stay in a trading range for some time. If that happened, each position taken with each false trend indication would result in an equity drawdown.
Moreover, simply acting on trading signals didn't work for me; I needed additional filters to reduce the number of false trades. The technique that helped me the most had very little to do with trend following a return to basic chart analysis. I decided to outline my methodology for approaching a trade using basic chart analysis and additional trading techniques applied to the bond market.
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