How can you achieve consistency with common strategies that are deployed by almost all successful traders, but not achieving the same results? This guide will give you the much needed know how to be able to facilitate and implement quality trades.
We will examine two key principles for continuation strategies such as the ascending and descending triangles, breakout from consolidation and bear and bull flags.
Before attempting to trade we must ensure that all conditions are correct otherwise the success of the strategy will be affected. It is important that price action analysis is carried out ensuring that price is in a trending environment. If we are observing an uptrend then we will note that the peaks and troughs of price action zig zag in an upward trajectory, therefore creating a succession of higher high’s, (HH), and higher low’s, (HL). If we are observing a down trending environment then we will note the opposite, a succession of lower high’s and lower low’s. We strongly recommend that this analysis is executed on a larger time frame, such as a daily timeframe first. Once you have perfected the strategy on a larger time frame and obtained successful results then attempt on smaller timeframes. The use of EMA’s can also be deployed as a secondary measure to check for a trend, but please remember that moving averages are a delayed technical indicator therefore cannot be entirely accurate. We can avoid some of the mis signal that can be given by these indicators by simply observing where price is in relation to the moving average and also how far they have fanned apart. For example, if you are utilising a 50 and 200 moving average, then in an up trending environment we need to observe the 50 moving average above the 200, with price cycling above and fairly close to the 50 moving average. If this is not the case and price is some distance from the 50 moving average then some retracement may be needed, (back towards the 50), prior to the trend continuing. The reverse is applicable if we are looking for shorting environment or a down trend.
The second most single component of the success of a trade using any of the continuation strategies mentioned is understand key levels of support and resistance. Finding time to conduct a weekly analysis for your favourite tradable instruments is mandatory if you would like to be a success as a trader and understanding where strong levels of support and resistance could change the complexion of your trading account. These levels are reaction zones that can stop the momentum of a rise or fall in price whilst also acting as magnates, as investors find confidence in clearly defined sticking points. So it is always advisable to incorporate them into your trading. They can used to safe guard a stop loss, used as an entry point and also even as a profit target. The easiest way to find them is to observe a larger time frame such a weekly chart, marking out areas that price has stalled in both directions. Then use historical data to confirm your finding, by seeing how much interaction each level has with price. The more interaction the stronger the level. (It is also worth noting that every level can be broken, it all depends on investor momentum). If you are going to utilise these levels as entry points then trade the retest rather than the break, so a limit order would be the better option rather than a stop order. This would be true for all strategies mentioned above particularly the ascending/descending triangles and the breakout from consolidation.
Now you have the two decisive factors for a successful continuation pattern trade it is about putting them to practice, best of luck!
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