Trading can seem tough (and it can be if you really want it to be) nevertheless some of the most powerful trades can be obtained from uncomplicated methods.
I will disclose a clear-cut method that can be employed by anybody to locate reliable trade setups.
Using this method does not require complex charting software programs or fancy math formulas.
It is among the older approaches around but many under-estimate its actual effectiveness.
It happens to be dependent on finding areas where one side of the marketplace can get caught and is pressed to liquidate positions at a loss.
This provides added fuel to increase the chances of a successful trade.
The initial thing we are going to undertake is to open an ordinary bar chart.
Feel free to use candlesticks if you desire however that is not necessary.
This operates on nearly all time frames, but for this example we will look at a 3 minute chart.
This particular technique is inclined to are the most effective on futures markets as well as currency trading but also holds true on stocks as well.
Keep in mind with equities you will find an extra level of difficulty - stocks move on their own but also are impacted by the oscillations of the leading indexes.
The right trade can potentially get undone because the index makes a forceful push against your position and pulls the price of the stock alongside it.
If you wish to make use of this method for day trading, one must be competent to recognize short-term tops and bottoms.
Short-term bottoms will look similar to a "V", short term tops the opposite.
If you are watching the S&P 500 futures for example, temporary bottom comes from a V in price with either side of the V at least 2 points roughly in distance.
Do not focus on exact values, this varies over time with differing fluctuations.
You do not want minor wiggles in price, those are simply noise.
At the same time you want approximately 30-60 min to pass from the beginning of the V to the push up the other side.
If you are able to spend time practicing a bit most of these should get quite easy to spot.
As soon as we uncover a few of these recent locations we want the price to come back to the low or the high.
We want the price level to break the resistance area but just by a modest level.
We then wait for the price level to turn in the other direction.
To identify a V bottom we want the price to have made a low only to bounce back up.
We subsequently look for the price level for a second time to come back all the way down to that V bottom area and break it by a small amount.
After that we wait around for that to fail and then price to turn up once more.
As soon as price has moved (and closed) back above the V bottom for several bars we look to buy with a stop just below the recent low.
What happens is traders attempted to break the price down however it did not really work.
This really does 2 important things - First it will cause a number of traders looking to short to take positions reasoning the price is weakening, and second it shook out some vulnerable longs and thus stopped to exit their positions at a loss.
The shorts will be pressured to close out their positions when the price moves higher which provides fuel for a nice trade.
The longs that were forced out of their trade will likely try to get back in the trade again which provides additional buying in the market.
The single key to this day trading strategy is not to guess - do not do it.
Do not ever buy into the breakdown attempt, you must wait for confirmation that it has failed.
There are enough occasions where the selling succeeds and just making a guess will cause losing trades in each one of these situations.
By watching for the failure initially we have a defined stop which is usually quite small in relative terms in comparison to the potential profits.
The failure will be self evident - price will just touch the prior low or even break it by a modest quantity after which it pushes higher again.
You will have plenty of time get into the position as a result it is not practical to make a guess that price is going to turn around.