Page 20 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

Determine Market Cycle

At all times, it is important to know what market cycle the instrument you are trading is
in. This will dictate many of the other factors involved in your trade execution. There
are four major market cycles:

1. Trending: A market that is moving consistently in one direction, up or down.

2. Consolidating: Also known as a bracketing market, this is when the market is stuck
in a price range between an identifiable “resistance” and “support” level. On a chart, it
will look like a sideways horizontal line.

3. Breaking out of a consolidation: A sharp change in price movement after the
market has been consolidating for at least 20 price bars.

4. Corrective: A short, sharp reverse in prices during a longer market trend.

Determine Volatility

Choose a time frame where you do not get stopped out often when the market is
trending. This is accomplished by watching a variety of time frames of the same market.
This way, you can see which one has been the most stable for your style of trading.

Your trading account size and the price of the market you want to trade will determine
what time frame you can trade, while maintaining proper risk control. This does not
mean you should trade that market and time frame if the market cycle and volatility are
not supportive to your style of trading.

Holding Trades Overnight and Assuming

Overnight Risk by Adjusting Time Frame

When holding trades over night, you inherently are exposed to greater risk.

For example, when trading a 15-minute time frame, your stop loss and position size will
be based on the 15-minute time frame. But let’s say you are 5 minutes from the close
of the day and the trade is profitable, and much more profit is possible if you hold the
trade overnight based on the 15-minute chart. As soon as you consider holding a trade
overnight, you must consider the “rules of engagement.”

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