Wednesday, August 21, 2013 Premium Subscriber Content

General Trading Strategies Never trade and/or invest with money that you cannot afford to lose. Always know any trade's risk/reward ratio. If a trade doesn't have decent ratio, then that trade isn't worth pursuing. Never make a trade where the loss (risk) is too great to stomach. A stop loss should !e placed at a key technical level which eliminates or greatly harms your trade. "rom a psychological standpoint, never go all in on a trade unless it has a very high risk/reward ratio on top of a very pro!a!le technical pattern with an un#uestioned stop loss point. Never impulse trade. In other words, don't enter into a position !ecause you feel like you have to trade something. $nly trade with a planned e%it (stop loss and target) strategy. Investing is different from trading in this regard. "urthermore, always stick to your stop loss point. &hen you are feeling overly !ullish or overly !earish, take a step !ack and re analy'e the situation from the opposite perspective. Always have an eye on a !ullish and !earish scenario. Avoid over trading, and instead, !e picky with your trades. (ou do not need to !e right all the time and profit from every move. )emove ego and emotion from your trading !ecause they are never helpful. After closing an e%tremely profita!le or unprofita!le trade, take a !reak and clear your head !efore returning. *areless mistakes are often made during this post trade euphoria. After a loss, avoid going into the ne%t trade e%pecting to make that loss !ack. +oreover, avoid holding onto a position past it's stop loss point and selling or covering a significant portion of a position !efore it's reward point unless ,ustified. Always remem!er that market valuations and prices are largely determined !y irrational traders trading !ased on emotions of greed and fear instead of from a scientific formula or method. In short, -markets can remain irrational longer than you can remain solvent.. / 0eynes 1on't !e afraid to !et !ig if you are e%tremely picky with your trading method and see a very high risk/reward ratio trade form around a very pro!a!le technical pattern. "ortunes are often made in a very short period of time !y traders who are e%tremely disciplined enough to wait a long time for a great trade to develop. Alternately, fortunes are often lost !y traders who are not picky and !et !ig on low risk/reward ratio trades ,ust !ecause they feel like they need to trade. &henever you feel pressured into making a certain trade !ecause the price is moving #uickly against your viewpoint and you're afraid of missing a move, don't trade. (ou always want to !e in control whenever you are making a trade and this pressured feeling is emotional and not logical. $ften times, this pressured feeling occurs right !efore a reversal.

General Buying Approaches 2uy 3 If price goes down, either do nothing or !uy more until stop is reached. If stop is reached, sell everything and look for another trade set up. 2uy 3 If price goes up, do nothing. 2uy 3 If price goes up, continuously raise stop at key technical levels. 2uy 3 If price goes up, continuously raise stop while !uying more a!ove these key technical levels. 2uy 3 4lace limit sell at important channel/trend line, "i!onacci retracement/e%tension, and/or hori'ontal resistance area. If the price forms a significant reversal pattern or !reaches an important support region !efore this area is reached, sell/cover part or all of position.

5 com!inational approach

General Shorting Approaches 6hort 3 If price goes up, either do nothing or short more until stop is reached. If stop is reached, cover everything and look for another trade set up. 6hort 3 If price goes down, do nothing. 6hort 3 If price goes down, continuously lower stop at key technical levels. 6hort 3 If price goes down, continuously lower stop while shorting more at key technical levels. 6hort 3 4lace limit cover at important channel/trend line, "i!onacci retracement or e%tension, and/or hori'ontal support. If price forms significant reversal pattern or !reaches an important resistance region !efore this area is reached, cover part or all. 5 com!inational approach

Waiting to Buy or Short Approach 4atience with discipline7 Never trade !efore a well conceived plan calls for it. +oreover, avoid !uying in anticipation of a !reakout and selling in anticipation of a !reakdown. 8et a good trade develop !efore trading instead of forcing one.

Some Highly Favorable General Trade Set-ups 4lace a !uy order's stop loss ,ust !elow a !ullish triangle's 9 wave after a !reakout. Alternately, place a short order's stop loss ,ust a!ove a !earish triangle's 9 wave after a !reakdown. 4lace a !uy order's stop loss ,ust !elow a !ullish daily or weekly reversal candle once confirmed from heavy volume and follow through. Alternately, place a short order's stop loss ,ust a!ove a !earish daily or weekly reversal candle once confirmed. Disclosure: Current Trading Positioning and/or Bias Long S!/CA!, B"TC#"$% S&ort SP', !A', C#PP(), #"L, A ! S!, ( ) S! Waiting to Buy S!/*P+, $",,(", SS(C, T$', B"TC#"$% Waiting to S&ort $AT-AS, S"L.(), -#L! %Because " am a /ery 0ong1term bitcoin bu00, " a02ays &a/e 304 o5 my bitcoin a00ocated 6ort5o0io in/ested in bitcoin 2&ic& " &a/e no intention o5 se00ing7 "5 t&e 6rice o5 bitcoin 2as to s8yroc8et tomorro2, " 2ou0d be 6er5ect0y &a66y 2it& &o2 muc& " &a/e in/ested7 T&is in/estment 6ortion a00o2s me to t&in8 more rationa00y, 0ess emotiona00y, and 2it&out a 0arge bias 2&ene/er " am trading t&e ot&er 6ortion o5 my bitcoin a00ocated 6ort5o0io, es6ecia00y 2&en " am not 0ong bitcoins in my trading 6ortion 2&en " see t&e 6rice rising7 "n t&e current en/ironment, t&e ot&er &a05 o5 my bitcoin a00ocated 6ort5o0io 9t&e trading 6ortion: is a00 in cas&7 " am 2aiting 5or a buying o66ortunity7 --------------------------------------------------------------------------------------------------------------------------------------------------------------------Basic trading termino0ogy;
For the purpose of clarity, the following definitions are partially taken from Investopedia

Position 1 T&e amount o5 a security eit&er o2ned 92&ic& constitutes a 0ong 6osition: or borro2ed 92&ic& constitutes a s&ort 6osition: by an indi/idua0 or by a dea0er7 "n ot&er 2ords, it<s a trade an in/estor current0y &o0ds o6en7 Long T&e buying o5 a security suc& as a stoc8, commodity or currency, 2it& t&e e=6ectation t&at t&e asset 2i00 rise in /a0ue7 S&ort 1 T&e sa0e o5 a borro2ed security, commodity or currency 2it& t&e e=6ectation t&at t&e asset 2i00 5a00 in /a0ue7 Co/er Buying a s&ort 6osition bac8 Sto61Loss An order 60aced 2it& a bro8er to se00 a security 2&en it reac&es a certain 6rice7 A sto610oss order is designed to 0imit an in/estor<s 0oss on a security 6osition7 )is8/)e2ard )atio 1 A ratio used by many in/estors to com6are t&e e=6ected returns o5 an in/estment to t&e amount o5 ris8 underta8en to ca6ture t&ese returns7 T&is ratio is ca0cu0ated mat&ematica00y by di/iding t&e amount &e or s&e stands to 0ose i5 t&e 6rice mo/es in t&e une=6ected direction 9i7e7 t&e ris8: by t&e amount o5 6ro5it t&e trader e=6ects to &a/e made 2&en t&e 6osition is c0osed 9i7e7 t&e re2ard:7 Target W&ere one 60ans on se00ing a 0ong or co/ering a s&ort 6osition 5or 6ro5it

Bitcoin
2:*/;61

Although the daily underlying indicators are supporting further gains, the weekly upper BB in the mid-$130s doesn't exactly allow for much upside efore the price hits ma!or resistance" #urthermore, if the significant support at $10$ %weekly and daily &0sma' represents a stop-loss point with a target of ($13), then uying at $1&0 represents a risk*reward ratio of around 1+1 which don't exactly !ustify a short-term long position"

2:*/;61 / continued
#rom a longer term trading perspecti,e, waiting to uy a ma!or trend-line touch or triangle completion makes a lot of sense" Because this trade would ha,e a stop-loss !ust elow the ma!or rising trend-line %currently around $)0' and a target well into the hundreds and possi ly thousands, e,ery day rings this trend-line higher and decreases the amount of risk that this trade entails" -his trade clearly has a ,ery high risk*reward ratio and will only getting etter"

Along with the upper weekly BB, the larger triangle possi ility further limits this mo,e's upside while warning of another sell-off towards ($.0 in the short-term"

2:*/;61 / continued
/f you thri,e on near-term trading, then uying a pull ack towards $11) makes a it of sense with a stop !ust under $10$ and a target of ($13)" Although this trade is still not great with a risk*reward ratio of around (1+&, it is much etter than attempting to uy in the mid-$1&0s with the same target and stop-loss" 0ou would asically e trading near-term momentum until the pattern of higher highs and higher lows ends" 1eep in mind though that this type of near-term trading is ,ery risky"

2:*/;61 / continued
-his chart should always e in the ack of one's mind" As long as the 234 chart continues to trend higher longer term, uying itcoins makes a lot more sense than selling them"

Stocks
64< 3 ;.6. 6tock +arket

2horting the close elow the daily &0sma at (15.0 was the optimal trade here with a stop-loss at the recent high of 160."56 and a target of (1))0 allowing for a high risk*reward ratio of (1+$" /f / wasn't already in this trade, / would wait for a pull ack into (1560 efore shorting with the same target and stop-loss"

1A< 3 =erman 6tock +arket

/'m much less inclined to trade the 7A4 compared to the 234 ecause the trade set-up isn't as profita le" But, if / was to trade it, / would short it at ($300 with a stop-loss at $8)$ and a limit at (6.00 allowing for a risk*reward ratio of (1+&")"

669* 3 *hinese 6tock +arket

/ really can't !ustify a short or long position in the 229: with the price currently around the middle part of a longer term falling wedge" -he risk*reward ratio would asically e (1+1 either way if your looking at a wedge continuation" / would e interest in uying if the price fell towards the lower trend-line at (1$)0"

NI009I 3 >apanese 6tock +arket

/'ll e interested in uying the ;/119/ once the price gets closer to the daily &00sma" /f a triangle forms here, then this would e a classic triangle reakout- uy with a stop-loss !ust under the wa,e-9 low allowing for a high risk*reward ratio" -he target would either e the width of the triangle or the upper longer term channel resistance"

Commodities
=$81

At this point, /'m really only interesting in shorting gold once it reaches its daily &00sma and ma!or hori<ontal resistance around ($1)00" 9,en though / see the price heading down in the short-term, the risk*reward wouldn't e worth it at this point with the price right in the middle of my potential target and stop-loss point"

6I8?9)

2imilar to gold, /'m really only interested in shorting sil,er once it reaches its daily &00sma and*or ma!or hori<ontal resistance around ($&5"

*$449)

=ith copper firmly in a falling channel and at its daily &00sma, shorting this commodity makes a lot of sense around the current price of (3"3 with a stop-loss at (3"$ %triangle 9-wa,e high' and a target within the low-$&s" -his trade would ha,e a risk*reward ratio of around 1+8"

NA:;)A8 =A6

>nless natural gas surpasses $8") %channel and hori<ontal resistance', its hard to argue that the trend isn't down" -herefore, shorting would make sense ut only after a pull ack at this point ecause of the ounce off of the )0? #i onacci retracement and a pre,ious low" / would e looking to short this market in the upper-$3s %daily &00sma' and possi le $8 %pre,ious high' with a stop-loss !ust a o,e $8") and a target of etween $& and $&")" -he risk*reward for this type of trade would e around (1+3"

$I8 (8ight 6weet *rude)

Because oil is at the top end of a large trading range, a short makes sense around $10) with a stop-loss !ust a o,e $11) and a target of ($$0" -his gi,es a risk*reward ratio of (1+3" /f the price mo,es a o,e $11), then /'ll consider uying with a target of ($1)0"

:N< / @A (ear ;.6. :reasury Note (ield %@A

/'m waiting to uy this pair on a pull ack towards &8 with a target of (80 %ma!or upper channel trend-line and ma!or hori<ontal support'" / would place the stop-loss at (&0 %critical 9= top support'" -his trade would hold a risk*reward ratio of around 1+3"

Currencies
9;)/;61 3 9uro, "i!er, anti dollar
>nless this pair closes a o,e the trading range of (1"38 and (1"&$, the price should continue trading etween these two areas" =ith the price currently at the upper range oundary, shorting makes a it of sense around the current price of (1"33) with a stop-loss at (1"3) and a target of (1"&$" -his trade would ha,e a risk*reward ratio of around (1+)"

A;1/;61 3 Aussie
>nless the price closes a o,e (0".3, the price is either heading sideways or down within the falling channel@ therefore, shorting this pair makes a lot of sense with a stop-loss !ust a o,e (0".3 and a target of the mid to low-0"$0s" /f / wasn't already short this pair, / would wait for a ounce to (0".0) to initiate a short" At that price, the risk*reward ratio would e, at least, (1+3"

;61/*A1 3 8oonie (inverse)

-he continuation pattern of higher highs and higher lows in this pair makes pretty con,incing argument that the price is heading higher" Buying makes a lot of sense with a stop-loss at 1"0&8 %last lower low' and a target of at least 1"05) %top channel trend-line and pre,ious &011 high'" /f / wasn't already long this pair, / would wait for a pull ack to the daily &0sma or ma!or falling trend-line around the mid-1"03s or (1"08 to initiate a short" At this price, the risk*reward ratio would e around 1+3"

;61/>4( 3 (en (inverse)

At the moment, /'m not really interested in this pair until it reaches its daily &00sma" 2imilar to the ;/119/, if this pair forms a large triangle, / would simply wait for a triangle reakout efore uying, setting a stop !ust under the 9-wa,e low, and ha,ing a target of around (110 %ma!or upper channel trend-line'" -he risk*reward ratio for this type of trade would pro a ly e around (1+)" / would consider shorting this pair on its way towards the ma!or lower channel -trend-line if it closed elow the daily &00sma and pre,ious low"

Disclaimer+ Although this newsletter includes market analysis, all ideas, opinions, recommendations and*or forecasts, expressed or implied herein, are for informational and educational purposes only and should not e construed as an inducement or instruction to in,est, trade, and*or speculate in the markets" Any action or refraining from action@ in,estments, trades, and*or speculations made in light of the ideas, opinions, and*or forecasts, expressed or implied herein, are committed at your own risk and conseAuence, financial or otherwise" / want to stress that there are no actual trading recommendations within this newsletter" -he trading logic in this newsletter is meant to supplement my asic charting newsletter from a trader's perspecti,e while still eing educational in nature" /n short, this newsletter should e seen as an educational tool to help someone learn how to trade from my asic charting newsletters instead of what to trade"

-he charts in this newsletter are made possi le y stockcharts B trading,iew" #or more information a out technical analysis, stockcharts offers free information under its chartschool ta + http+**stockcharts"com*help*doku"phpCidDchartEschool

As always, feel free to ask me any Auestions ,ia email or chat<y, 9n!oyF -wa,eaddict :hat Goom %su scri er-only' Hocation+ http+**www"chat<y"com*--------------------3assword+ -------------------------------------------