4 simple trading tools

4 Simple Trading Tools You Can Use http://www.netpicks.com/4-simple-trading-tools/

Over the years, much has been written about how simple trading

can be yet, is not easy. It's not just a play on words but

hammers home that the work you do to find trades, manage risk, and other

variables that make up the act of trading, is simple.

Doing it consistently is another matter and that's when "not easy" comes into play. The best way to learn is with live

examples and I want to focus this article on the term "simple" by using the USDCAD Forex pair and a swing

trade scenario.

I want to show 4 simple trading tools: a simple pattern a simple entry a simple risk reduction a simple exit from a trade.

Keep in mind though that the context that was taken into consideration was: Steady uptrend in the USDCAD Two weeks of momentum moves 10 weeks of the market in a pause

A simple channel was drawn on the daily chart once lows and highs were

locked in and could be used for anchoring and duplicating. There is nothing magical about channels but they do tend to highlight the rhythm

of the price action quite well.

An interesting time is when the channel is broken with momentum

and those can offer some solid trading opportunities if you know how to

trade them.

Channels can highlight trading ranges, trends, and even pullbacks.

A simple tool with many uses.

This channel though showed more of a range in the action of the price with a

slight upward slope. I think we can agree that the price action is making

some sloppy moves inside the channel and nothing is really clear cut.

In hindsight, sure you could sell the top as we see in the middle of the

chart however, unless you were day trading on lower time frames, this

price action is not conducive to a clear trading opportunity for me.

There was a clear setup as shown with the orange circle and I certainly could have

moved my line so that the shadow broke it however, consistency matters in trading

and I missed that trade.

For me, this was not a trade entry. The green circle is another matter.

It's a reversal type candle of course but the highlight for me was that it probed

below the bottom channel and was quickly rejected.

Did it trigger sell orders and then quickly reject them forcing traders to buy to exit and helped form a strong bull body candle? The details behind the scenes was not important but this failure test was an entry for me into a

long trade.

As a matter of fact, I did not wait for the close of the daily candle (front running) because location, context, and sharp rejection was enough for

me to risk on this trade.

The stop was below the low of the entry candle and I find

setting stops on these types of plays very straight forward.

Mean reversion trades are another matter as setting stops on those setups come with their

own sets of issues.

One easy was to cut risk is to take trading profits at 1R. In these range

plays, I usually cut half of the position off which will leave me with no risk on

the trade. You can see on this chart where my position was reduced.

Risk reduction and management is critical

for your long term trading success.

What had me trigger into this trade was an obvious reversal candle at a prime location in a market that is in an uptrend.

What gets me out of this trade is an obvious reversal candle that shows up in the middle of a range…..a range that

has seen some sloppy price movement.

The candle that gave me my risk reduction also closes as a candle with

a small bear body and a long upper shadow as pointed in the trading chart

above.

It was impossible to ignore that candle and my stop was ramped up just

below the low. You can clearly see that I was taken out of this position

leaving me USDCAD flat with 134 pips on the scale and 53 on the profit stop.

There are clues on charts however not every clue builds a case big enough to

base a trade on. Not every move is playable but at certain points on a chart, there is the possibility of the

supply/demand imbalance being big enough to give us a playable move.

Simple patterns that have been around since there have been price

charts...showing up at certain points in a market...can offer the astute trader plays that are worth risking some of

their bankroll on.

It does not have to be complicated. It is not reinventing the wheel. It is using simple trading tools as discussed, what

has shown to give a slight edge,

and getting the most of it until the time comes to exit.

Then just allow compounding to help

grow your account.