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Our main focus as a trader is to be profitable In the long term. To be clear, trading on the forex or the stock market, or the crypto exchange is a craft. Like every craft, this one has its own rules and laws. If you stick to them, you have a good chance of being profitable in the long term, but the reverse is also true, if you don’t stick to them, you will surely end up in the red in the long run.
It is usual to go into depth during such instructions, but now I want to introduce you to the necessary steps so that you know what awaits you. If you follow this procedure, profitability is within your reach. We will go through each step in detail later.
A recipe for successful trading
Before we start with the explanation, I should warn you. Never force trades. Never “know” what the market will do, but let it do it. The market is the cause and you need to figure out its movement.
- Determine which is a major trend (bullish or bearish)
- Draw support and resistance lines. Feel free to do more of both support and resistance. Let them be weekly and daily support and resistance.
- Draw the trend line(s)
- We need confluence. We are looking for a confluence between the support or resistance area with a trend line or Fibonacci golden pocket.
- If there is confluence, let’s see if there is additional confluence (confirmation) in the form of divergence or long wicks, or some known pattern
- If there is, we enter the trade.
- We set the stop loss at the level of the lowest wick
- We set such profit at the level
- We activate the trade on the exchange
- This seems easy but it takes a lot of discipline and learning to do it. Remember that not every trade is a winner, but if you stick to the rules, you will have a good percentage of winning trades, and that way you will be profitable in the long run, which is the goal of every trader.
To follow this little recipe you need to know every single item to do. You need to know the answers to all of these questions.
- How to determine a major trend?
- How to find support and resistance zone?
- How to draw a trend line?
- How to find a “golden pocket”? (The golden pocket is the fib level zone from 0.5 to 0.618)
- What is confluence?
- How to correctly determine the stop loss?
- How to correctly determine to take profit?
What is confluence trading?
If you have two or more levels joined at the same point on the graph it is a confluence. Think of it like you have two rivers meeting and think of the estuary as a confluence.
What can confluence be?
- If the fib level zone 0.5 to 0.618 is overlapped with the trend line
- If the fib level zone 0.5 to 0.618 is overlapped with the support zone
- If the support line overlaps with the trend line
Traders who use the confluence method of trading mainly rely on “Price Action Trading”.
What is price action and what is price action trading?
Price Action is defined as the movement of the price at a certain time. Price action trading is a trading method that requires the trader to read the market and make decisions based on price movements without relying exclusively on technical indicators.
Why aren’t all market participants profitable and why aren’t they all trading on the price action principle?
Traders who practice price action trading rely on the subjective reading of chart data. Some of the traders will recognize a change in the main trend in the same chart, and some will see a pullback in the same chart. That’s where confluence comes into play. If two events coincide at some point (and it is possible and desirable to have more), then the probability that the price will move in accordance with our expectations is higher.