How to choose the best buying and selling points?
Many friends have the ability to discern the right direction, but they just can't find good entry and exit points. They either hesitate when entering the market, or they want to leave as soon as they make a little profit, thus always missing the big trends, to the point where they could slap their thighs in regret.
Actually, identifying the right direction is only the first step in trading. Finding precise and effective entry and exit points is the key to successful trading.
Sometimes, if you enter at a bad spot, your stop loss will be too large, and naturally, you will hesitate to open a position. Or if your exit strategy is not well set up, and your profit target is not properly established, you naturally won't be able to hold onto significant profits.
However, there are solutions to these issues. Today, based on my past trading experience, I will explain the best entry and exit points for four types of trading logics, including trend logic, oscillation logic, swing logic, and batch trading logic. I believe this will make everyone's trading ideas clearer.
1. How to choose entry and exit points with trend logic?
The core of profiting from trend trading is to hold onto large market movements.
In a trend market, the earlier you can detect that the market is about to start, the better your entry position will be, and the smaller your stop loss will be. When exiting, the earlier you can identify that the trend is about to reverse, the smaller the profit drawdown will be, and the larger the profit will be.
How can you identify this sooner and be one step ahead?
Large-scale trends are composed of smaller-scale market movements. The same technical indicators will issue reversal signals earlier at smaller scales. For example, a trend that starts on a 4-hour chart will always show a reversal signal on the 30-minute chart before it appears on the 4-hour chart.
In practice, you can use this combination of different time frames to select the best selling points for trend trading.Let me illustrate with an image for everyone on how to hold onto a 4-hour trend using 30-minute buy and sell points during a 4-hour trading session.
The image shows the candlestick chart of the British Pound against the US Dollar. On the left side of the image is the daily chart, and on the right side is the 4-hour chart.
The daily chart shows a break below the uptrend line, and after the two moving averages form a death cross, the trend is confirmed as bearish. Once the bearish direction is confirmed, switch to the 4-hour chart to trade the 4-hour trend. The 4-hour chart then retraces to test the 50% and 61.8% Fibonacci levels.
The purpose of doing this is to increase the stability of the 4-hour trend by using the trend from the daily level.
The image shows the 30-minute candlestick chart of the British Pound. As we have previously analyzed the daily and 4-hour charts, after the market reaches the Fibonacci levels, we look for a 123 pattern break on the 30-minute chart. It is required that short positions must break below the 120 moving average, and long positions must break above the 120 moving average to enter the trade. Additionally, the 123 consolidation pattern must consist of at least 40 candlesticks.
Entering the trade from the top break and holding the position continuously for 8 days, the market then forms a reverse break from the bottom to close the position.
Adding standards for moving averages and consolidation patterns is to increase the stability of the signals and avoid being washed out by false signals.
You can review the first image, where there is a blue circle on the right side of the image. Inside the circle, a downward structure is also formed, but it cannot be entered if it does not reach the 40-candlestick cycle, thus filtering out false signals.
Notes to consider:
You can enter aggressively but exit conservatively. The more aggressive the technical criteria for trend trading logic, the earlier the entry, and of course, the quicker the exit, which can easily be washed out by false signals. Therefore, you can adopt a strategy of aggressive entry and conservative exit.Aggressively enter the market, open positions early, and get good entry points; conservatively exit, close positions slowly. This approach may reduce the success rate somewhat, but it can capture major market trends.
Trend trading focuses on capturing large price movements and achieving a high reward-to-risk ratio, which is more important than the success rate.
2. How to choose buy and sell points in a range-bound logic?
Range-bound trading involves perceiving the market as a rectangle, within which the market operates. Another form is the rising or falling flag pattern, which can be understood as a tilted rectangle. One should go long at the lower points of the "rectangle" and short at the higher points.
The left side of the chart shows a horizontal range-bound consolidation pattern with relatively standard high and low points. The right side of the chart shows an upward flag pattern of a rising trend.
Range-bound trading offers limited profit space, with relatively short holding periods and a higher success rate. It is possible to choose a more aggressive entry mode and a relatively conservative exit mode.
Taking the horizontal consolidation pattern mentioned above as an example, when the market tests the horizontal support level, one can directly place an order to enter. The stop loss should be set at a position 0.5 times the range-bound space below the entry point.
Once the order is entered and the profit rises, take profits at the 4/3 position within the range-bound area.
The chart shows a 30-minute candlestick chart of the British pound against the US dollar.
The two red lines represent the high and low points of the range-bound area. After the market reaches the low point, one can directly place an order to enter, with the stop loss set at a position 0.5 times the range-bound space below. After the order is profitable, take profits when it reaches the 3/4 position of the range-bound space, and then wait for a short trading opportunity.Trading with alternating long and short positions until the market breaks through the stop-loss order, then looking for the next range of fluctuations.
The stop-loss space is half of the fluctuation space, and the profit-taking space is three-quarters of the fluctuation space, with a positive risk-reward ratio. Moreover, the stop-loss is set at half of the fluctuation space below, which can avoid many false breakouts.
Precautions:
In the case of a flag pattern fluctuation, an ascending flag pattern is primarily for long positions, and a descending flag pattern is primarily for short positions. Profit-taking should be more conservative, and you can choose to leave a portion of the position open for profit-taking, waiting for the market to accelerate.
3. How to choose buying and selling points in swing logic?
Swing trading is based on the Elliott Wave Theory.
The trend defined by the Elliott Wave Theory, taking a bullish trend as an example, consists of three impulse waves interspersed with two corrective waves. Wave 1 rises, wave 2 corrects, wave 3 rises, wave 4 corrects, and wave 5 rises.
Swing trading aims to capitalize on waves 3 and 5, and some conservative traders only trade wave 3, as it is the main impulse wave with fast speed and large space.
Swing trading is a logic that lies between trend trading and range trading, with a larger holding space than range trading but smaller than trend trading.
Trend trading involves holding positions through corrections to capture large spaces, while swing trading involves exiting positions during corrections and waiting for the next swing to start.The chart shows a 30-minute candlestick chart of the British Pound (GBP) against the US Dollar (USD).
The market initiates from the bottom, completes the first wave, and then undergoes a correction. After the correction ends, the second wave begins, and we enter a long position. Subsequently, the market surges and enters a high-level consolidation before closing the position. After closing the position, the market falls back to test the moving average, forming a reversal pattern and initiating again, entering a long position, and the market moves through five waves.
Swing trading only captures a segment of the market, and before the market starts, there is usually a period of consolidation, accumulating energy. The main uptrend usually unfolds quite quickly, hence the holding period is relatively short, and closing positions is swift.
When entering a position, you can do so when the market consolidation shows an ending signal. To close a position, you can use both the moving average and trendlines to track the upward wave; close the position with a profit when the market breaks in the opposite direction.
The chart is a 30-minute candlestick chart of the GBP/USD.
After the market completes the first wave and undergoes a correction in the second wave, draw a Fibonacci retracement from the high and low points of the first wave. The market tests the 38.2% to 50% level, and if a reversal candlestick pattern forms, it is a signal to enter.
Attention should be paid to the reversal candlestick pattern, which must be a large candlestick with significant volume. The upward engulfing pattern in the chart, where the space between two candlesticks is greater than the space of all the correction candlesticks, is a very important criterion and signal, indicating that the market is active and the probability of reversal is high.
When the market starts and reaches twice the space of the first wave, begin to connect the uptrend line. Close the position when the market breaks through the uptrend line and the moving average at a high level.
In the chart, the high point of the third wave also reaches the 2.618 extension of the first wave, which can also be used as a reference for closing the position.
Precautions:The entry candlestick pattern must be a large-spaced candlestick to imply a reversal. When drawing trend lines, connect them only when the 3rd wave space reaches twice the 1st wave space, which meets the most basic 3-wave technical standard. Until then, hold the position with a stop loss.
4. Buy and sell in batches
In the above content, we discussed that an aggressive entry point allows for an early entry, ensuring not to miss opportunities, and the entry price is advantageous, but the error rate is high. A conservative entry point is delayed, which may miss trading opportunities, and the entry price is worse, but it is more stable with a higher success rate.
The selling point follows the same logic, with the same advantages and disadvantages.
Many traders find it difficult to balance and are unsure of how to choose. In fact, there is a way to achieve a relative balance, which is to "buy and sell in batches." Buy half at an aggressive point and leave half to enter at a conservative time; close half aggressively and leave half to close at a conservative time.
The chart shows a 15-minute candlestick chart of the British pound against the US dollar.
After the market completes a wave and starts to fall back, place an order directly at the 38.2% Fibonacci retracement level, and enter half of the position aggressively. The probability of the market retracing to 38.2% is very high, so the chance of missing the market is relatively low.
After that, as the market continues to adjust downward and forms a reversal candlestick pattern again, open the other half of the position.
After entering, as the market starts to rise, connect the uptrend line. Close half of the position when the uptrend line and moving average are broken. Wait for the other half to close when a 15-minute reversal structure forms and the moving average is broken.
In this order, the second closing position is 500 points higher than the first closing point, which is a significant advantage.Precautions:
There are many radical approaches and many conservative ones. Combining the radical with the conservative increases the complexity of trading, which is something to be mindful of in operations. Additionally, it is crucial to maintain consistent pairings, ensuring that the same radical and conservative methods are used for each transaction.
Finally, I emphasize several points:
(1) There are numerous different technical methods for the aggressive and conservative entry and exit points of a trading system, and they can all be flexibly combined. Everyone can choose the ones that suit their own use and operate accordingly, applying them flexibly.
(2) Before applying any technical method in real combat, it is imperative to backtest and verify it, to tally the profitability, and to enter live trading only after confirming its feasibility.
(3) Trading in batches is a very viable strategy, suitable for the psychological needs of most traders, and it deserves close attention.