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Knowledge is power; power gives you the ability to create your own financial destiny. Know the market and know how to get the most out of it daily by buying low and selling high.
- John Novak | |
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Today's Featured Article
How many times have you heard it as an investor or trader? To make the most money with your trading you need to BUY LOW and SELL HIGH, 1000 times, 5000 times?
Wonderful advice but the lack of a definitive answer to this common saying is a problem and it is estimated that 95% or better of investors and traders have no real way to define:
WHAT IS LOW? WHAT IS HIGH?
So, that is what we have tackled and hopefully will give you some food for thought as you look at your chart and wonder where the market will make a top or a bottom.
The following is an answer from a random online forum in which a novice investor asked a professional and wanted to know how to make money selling high and buying low. I have found that this answer is typical from most professionals and that it really gives a nice "catch phrase" but will not address the real issue. What is LOW? What is HIGH?
Answer from the online "professional"
The trend is your friend and "Don't fight the tape".
Bull market (rising stock prices) i.e.: aggressive growth keep buying
Bear Market (falling stock prices) i.e.: defensive
Bullish investor - buy a stock in the hope it will go up (buy low-sell high)
Bearish investor - sell the stock outright or sell it short believing it is headed lower
THE NEXGEN SOLUTION TO KNOWING WHERE LOW IS AND WHERE HIGH IS will give you a simple process to help you to apply this conventional wisdom to any market- any timeframe- and any style of trading that you would like to use it on from swing trading to daytrading to scalping the market and help you to define what actually is LOW and HIGH and how to apply it consistently day in and day out.
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THE FIRST THING you should know where the market has the potential to turn around, future (highs and lows) - at Nexgen Software Services we have developed a program that will automatically do millions of Fibonacci calculations on historical data to give you a clear and easy to read roadmap that will give you the upcoming potential lows and highs before they happen. Red lines will be resistance and Blue lines will be support.
Below is just one simple example of a chart with the T-3 Fibs ProTrader software applied to it showing upcoming areas. As you can see the key areas give you great places to buy low and sell high and you also know immediately when to stop selling high or buying low by a change in line color. This process can be done by hand if you have an extra 5 hours per morning or you may have some other type of key support and resistance software that you use. Either way, you must know where the market has the POTENTIAL to turn. A link to a short video will be posted shortly to help explain this further.
If you cannot view Example 1,
go here.
Now let's take a look at some rules on how to take advantage of a support or resistance on any market, any timeframe from stocks to futures to forex and bonds.
This information will do two simple things that are needed for success. Number one, trade on the correct side of the market, and number two, trade the proper areas, which are the areas anticipated to hold.
We use our Macd indictors to determine if there is a higher potential for a key Fibonacci area to hold. There is one simple divergence setup that we use on the Macd and that too will be explained in a short video at the end of this lesson.
Finally, once we know our key areas where the market may turn, the potential highs and lows and we have validation that those areas may hold based upon a single indictor we then have the potential to take advantage of this knowledge and take a trade or position with the market. We call this trade a Fibonacci Momentum Trade. Or very simply put, buying low and selling high.
Let's review the rule for the trade setup.
The chart will provide the area for the entries and the direction for trades.
The Areas and Macd will be indicative of the direction and entry points. There are five rules that will be used as guidelines when looking for the Reversal.
Rules for the Fib (support or resistance) Momentum Trade
- The market MUST reach an area of "Blue" Support, or "Red" Resistance.
- The Macd on the larger chart MUST show a "Strong" reaction off of the area, or areas.
- The Small Triggers ( moving averages) MUST be crossed in the trade direction.
- Upon pulling back to the area(s) anticipated to hold, the Macd MUST show a weak Retracement, also known as Retracement Divergence. This indicates the area has an even greater potential to hold.
- Stops are placed behind the High or Low that got you in.
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Here are a couple of other example of this on several markets and several timeframes and then we will get to the short video that contains and abbreviated explanation of this setup.
The following chart is a US dollar versus British Pound forex chart. This large of a chart will generally yield 1-3 day trades that will generate huge potential returns with very small risk. Notice how little risk there is at the ENTRY POINT (#4) with stops just beyond the entry point. Also it is important to notice how much profit potential there is by allowing the trade to run all the way to the TARGET AREAS (#5). This one trade yielded almost 250 pips on a single trade!
If you cannot view Example 2,
go here.
Now we will look at a very large timeframe of Dow Jones Mini Futures that most traders will commonly refer to as swing or position trading. What you will recognize quickly is that the method for 2-4 day in length trades uses the exact same rules and setups just on a larger chart. Notice how little risk there is at the ENTRY POINT (#4) with stops just beyond the entry point. Also it is important to notice how much profit potential there is by allowing the trade to run all the way to the TARGET AREAS (#5).
If you cannot view Example 3,
go here.
The following chart is an example of the exact same method being used on the QQQ market on an intra-day basis. The cyan labeling is a trend continuation trade, which we will discuss, in a later article. The important thing to note is how risk was very low at the initial point of entry (#3) and how much profit potential the market generated (#6).
If you cannot view Example 4,
go here.
Click for Video
Here is a short video that will bring together everything that we have discussed above and will bring to life real world trading examples of how to really buy low and sell high within a very defined framework.
Go here for video instructions.
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About the Author
John Novak
is President of Nexgen Software Services Inc. John is the developer of the T-3 Fibs ProTrader indicator package. He has been involved in the marketing and distribution of Technical analysis software for the last 13 years. He has devoted the last 10 years to the automation of a popular discretionary methodology that he taught in seminars for over 2 years to many successful traders that was centered on Fibonacci analysis of both time and price. With the help of his software programmers they have automated this entire Fibonacci process into a fully automatic program. He spends his days working on constant improvements in his analysis in predictive indicators for traders and spends
the day trading his own methods. | |
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