Commodity Futures Trading for Virtual Trader Profits!
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There are of course exceptions to the trading rules about trading with higher swing-highs and lower swing-lows. At times, you will come across a price bar which makes neither a higher-high or lower-low. This is called an Inside Bar. These you must treat differently, and require waiting for the bars to follow before continuing your line.
At times, you will come across a price bar that makes both a higher high and also a lower low. This is called an Outside Bar. Here, two swings are forming in short order. Usually, the swing has occurred first during the forming of the bar before the outside bar. But this will not be obvious looking at the price chart because the bar before the outside bar will not have a lower low or higher high than the outside bar itself. The trick here is to note the intra day pattern to determine whether the outside bar formed its bottom or top first.
For example, say price bars have been making lower highs and lows. We then come to a price bar making both a higher high and lower low. Do we draw our line to the lower low first, then up to the new higher high? Or do we draw our line from the low of the price bar before the outside bar to the high of the outside bar, and then back down to the low? It all depends on which way price actually went from the close of the previous price bar, does it not?
However, noting the intra day prices for both price bars, you can quickly tell where the actual swing occurred and whether the outside high or low formed first. Then you can continue your line from there. One quick way is to simply note which way price moves after the outside price bar. If the next bar makes a higher high, it is likely that the outside bar's low formed first with the high last. If the next bar makes a lower low instead, you then can assume the outside bar's high formed first, then its low.
Now, once you have constructed your swing chart, and can see swing-bottoms and swing-tops which you did not know existed before, you are ready to apply some of those price methods mentioned earlier to these swing tops and bottoms. Ratios can be applied using the large as well as the small ranges created by these swing tops and bottoms. You are on your way in getting more information out of your price charts than you may have previously.
Stacking the Odds in Your Favor
Being profitable in the high-risk (high profit potential) business of virtual online commodity trading which requires hard work. So many trader websites advertise their trading services as a simple way to make lots of money, which has been the downfall of many new trading careers. There exists a few (very few) trading programs on the market which instruct you when to enter and exit a market position with good annual percentage gains on investment. They require a large initial capital base and will also often experience large account equity drawdown from time-to-time.
Most new futures markets traders do not fit the requirements necessary to trade the commodities, stock or futures markets this way. Thus, they must learn to make their own trading decisions in the hopes of increasing their small market position. These are called "discretionary traders." Many desire to trade this way even if they have the capital funding to trade using a trading program. Because discretionary trading requires that the trader make all the entry and exit decisions, work must be done to reap rewards from this type of approach.
A trading plan is a good start for any discretionary trader. Trading plans are very important for Forex market traders, where profit & loss potential is high, as is leverage and trading account margin! FX Forex traders need to follow a set of personal trading rules so each trade is not merely some act of chance. Trading based on luck is no better than casino gambling, which futures trading is certainly not meant to be.
Success at profitable stock market trading or commodity futures trading is not some mere roll of the dice based mostly on luck, where you have a 50/50 or less chance of success in a casino gambling game. It's more like a merchant of a clothing store that must make fashion decisions each quarter, and if his insight into the market is a good one, profits will be made by the sales of his inventory.
However, a bad business decision and he is left with a rack filled with clothing nobody wants and a financial loss. His success depends on properly analyzing the market environment and acting accordingly. Trading is the same.
As a discretionary trader, the task is to stack the trade odds in your favor for any given trade consideration. The power to do this is in every trader's hands. Do the job well, and you will be rewarded. Try to take shortcuts due to time restraints or laziness, and the outcome may be very disappointing. So how might a discretionary trader stack the odds in his or her favor? That is what we will now discuss.
For those of you who actively trade (or desire to learn how to trade) the financial and futures markets, there are a lot of other things outside the markets you should be following. But, I guess my bigger message is for those of you that aren’t in the futures markets, whether you trade them or not, the futures markets have a significant impact on what happens in the other financial markets, including forex, currencies, options and stocks. That’s why you should soak up every piece of good trading knowledge like a sponge in a quest to clearly see the bigger picture.
Look at The Overall Big Picture
Many new futures traders simply want to trade quickly and often. The desire to make quick money plagues many who newly enter the futures markets. In addition, they find little time to evaluate their approach to trading before jumping from one trading method to another. And the sad thing is, they may have come across a method that has helped many before them, but they were passing through at the speed of light and did not get the gist of it before moving on to something worthless and costly. I have seen this happen much too often.
Discretionary traders need to understand that time and study is very important if to ever achieve a good trading approach. So many common sense approaches are ignored for the quick and dirty buck. One such approach is simply to see the big picture. This author has written several articles relating to this very subject, and for good reason. It is not only a smart thing to do; it is also something most forget or are too lazy to do.
Market patterns and trends go beyond the simple daily price charts. They exist on weekly, monthly and yearly price charts as well. An up trend on a daily chart may exist only as an one-bar rally on a weekly chart showing a strong downward direction.
And this weekly move may exist only as a bull trend pullback on a monthly chart. If you only focus on a daily price chart to base your trading decision on, you could be entering a market trending strong against your position.
Therefore, the wise thing to do regardless of the method you choose to use in trading is to start with the larger time frame (such as the monthly price chart) and work your way down to the daily or even intra-day time frames.
A good example of this is the use of a daily time reversal date. If a trader simply looks to enter a trade based on a daily reversal date, it may end up as a quick blip on the daily price charts in favor of the stronger trend long-term.
Trading small reversal blips are certainly not the way to go, unless you are a scalper, forex markets day trader, or in to euro day trading. To stack the profitable trading odds in your favor, you will want to discern first the long-term direction (i.e., Monthly chart), then note the medium-term direction (i.e. Weekly chart), and if both are in agreement in direction, look to the daily price chart to time an entry in the same direction as your long and medium-term trends.
Keep in mind the long-term trend will often have more power over the medium-term trend, just as the medium & long-term trend will carry more weight than the short-term or daily price trend. As a trader looking to stack the odds in your favor, you want to get the heavy-weights on your side before getting into the ring.
The quick way for those with limited time on their hands to determine the likely market trend is to use a trend line. Draw it under major swing bottoms or across major swing tops on the monthly, weekly and daily price charts to see the dominant trend direction.
For those who wisely take more time at doing this, it is best to look closely at the different time frame charts and note whether it shows higher swing bottoms (for an up trend), or lower swing tops and bottoms for a down trend. Learn to draw swing charts (one book on this subject is called "Pattern, Price and Time" by J. A. Hyerczyk), which immediately gives you a birds eye view of the trend direction.
If your monthly chart trend is up, and your weekly trend is up, then when you come across a daily swing bottom forming (especially on an expected reversal date and support price) higher than the prior daily swing-bottom, you have a real powerful buy signal to go long, looking for a new up-trending bullish market to start.