[Support could become resistance, why?]
There are two reasons for this…
Reason #1: Losing traders hoping to get out at breakeven
Support is an area where potential buying pressure could step in and push the price higher.
However, support doesn’t always hold.
When it breaks, those traders who are long will be sitting in the red. The smart traders will cut their losses and move on. But, stubborn traders will hold onto to their losses and hope the price will reverse back to their entry price — so they can get out at breakeven.
So if you think about it, this group of stubborn traders will create selling pressure at their entry price as they exit their positions, and if there’s enough of such traders, support will become resistance.
But that’s not all because…
Reason #2: Textbook setup
Traders familiar with classical technical analysis will look to sell at the previous area of support as that’s what most textbooks teach.
And if you get enough traders “following” the textbook setup, it puts selling pressure on the previous area of support which could now become resistance.
There are two reasons for this…
Reason #1: Losing traders hoping to get out at breakeven
Support is an area where potential buying pressure could step in and push the price higher.
However, support doesn’t always hold.
When it breaks, those traders who are long will be sitting in the red. The smart traders will cut their losses and move on. But, stubborn traders will hold onto to their losses and hope the price will reverse back to their entry price — so they can get out at breakeven.
So if you think about it, this group of stubborn traders will create selling pressure at their entry price as they exit their positions, and if there’s enough of such traders, support will become resistance.
But that’s not all because…
Reason #2: Textbook setup
Traders familiar with classical technical analysis will look to sell at the previous area of support as that’s what most textbooks teach.
And if you get enough traders “following” the textbook setup, it puts selling pressure on the previous area of support which could now become resistance.
How to Draw Fibonacci Retracement: A Step-by-Step Guide for Traders
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On Balance Volume (The Essential Guide)
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Many traders make the mistake of trying to find the best trading strategy.
In reality, it's about knowing yourself so you can find the best strategy to suit you.
In reality, it's about knowing yourself so you can find the best strategy to suit you.
How To Set Take Profit Orders (The Essential Guide)
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[Why you always get stop hunted and how to avoid it]
Imagine…
You manage a hedge fund and want to buy 1 million shares of ABC stock. You know support is at $100 and ABC is currently trading at $110.
Now if you were to buy ABC stock right now, you’ll likely push the price higher and get filled at an average price of $115 — that’s $5 higher than the current price.
So what do you do?
Since you know $100 is an area of support, chances are, there will be a cluster of stop loss underneath it (from traders who are long ABC stock).
So, if you could push the price lower to trigger these stops, there would be a flood of sell orders hitting the market (as buyers will exit their losing positions).
With the amount of selling pressure coming in, you could buy your 1 million shares of ABC stock from these traders which gives you a better average price.
In other words, if an institution wants to long the markets with minimal slippage, they tend to place a sell order to trigger nearby stop losses. This allows them to buy from traders cutting their losses, which offers them a more favourable entry price.
Go look at your charts and you’ll often see the market taking out the lows of support, only to trade higher subsequently.
Now you’re probably wondering:
“So how do I avoid it?”
Simple.
Set your stop loss a distance away from support to give it some buffer so your stop loss doesn’t get eaten too easily.
Here’s how…
- Identify the lows of support
- Find the current Average True Range (ATR) value and subtract 1 ATR from the lows of support
The idea is to define the current market’s volatility and then subtract it from the lows of support.
This way, you are giving your stop loss a buffer that’s based on the volatility of the markets (and not just some random number).
Pro Tip:
If you want a tighter stop loss, you can reduce your ATR multiple, like having 0.5 ATR instead of 1.
Imagine…
You manage a hedge fund and want to buy 1 million shares of ABC stock. You know support is at $100 and ABC is currently trading at $110.
Now if you were to buy ABC stock right now, you’ll likely push the price higher and get filled at an average price of $115 — that’s $5 higher than the current price.
So what do you do?
Since you know $100 is an area of support, chances are, there will be a cluster of stop loss underneath it (from traders who are long ABC stock).
So, if you could push the price lower to trigger these stops, there would be a flood of sell orders hitting the market (as buyers will exit their losing positions).
With the amount of selling pressure coming in, you could buy your 1 million shares of ABC stock from these traders which gives you a better average price.
In other words, if an institution wants to long the markets with minimal slippage, they tend to place a sell order to trigger nearby stop losses. This allows them to buy from traders cutting their losses, which offers them a more favourable entry price.
Go look at your charts and you’ll often see the market taking out the lows of support, only to trade higher subsequently.
Now you’re probably wondering:
“So how do I avoid it?”
Simple.
Set your stop loss a distance away from support to give it some buffer so your stop loss doesn’t get eaten too easily.
Here’s how…
- Identify the lows of support
- Find the current Average True Range (ATR) value and subtract 1 ATR from the lows of support
The idea is to define the current market’s volatility and then subtract it from the lows of support.
This way, you are giving your stop loss a buffer that’s based on the volatility of the markets (and not just some random number).
Pro Tip:
If you want a tighter stop loss, you can reduce your ATR multiple, like having 0.5 ATR instead of 1.
The Parabolic Stock Trading Strategy Guide
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There comes a point in trading where too much information hurts.
You must put what you know into practice, a plan, something concrete you can test, verify, and validate.
If you're not getting the results you want, take a step back and work with what you have—not add more.
You must put what you know into practice, a plan, something concrete you can test, verify, and validate.
If you're not getting the results you want, take a step back and work with what you have—not add more.
The Complete Guide To Trading Sideways Markets
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[The ONE thing you should never do in trading]
Trading is a mental game.
If you want to excel in this endeavour, your mindset must be at peak performance.
But if you borrow money to trade, you erode whatever edge that you might have.
Here’s why…
Trading with borrowed money = Money you can’t afford to lose.
And when you trade with money you can’t afford to lose, you make poor trading decisions because you have the “I can’t afford to lose” mentality.
So, what do you do?
- You shift your stop loss because you don’t want to take a loss
- You take tiny profits because you’re afraid of watching them turn to losers
- You average into your losers hoping to catch the bounce and recover your losses
Eventually, your poor decisions catch up with you and you lose everything (including the money you borrowed).
Now you’re worst off than before because not only are you broke — you’re also in debt.
Do you want this to happen to you?
Then, don’t borrow money to trade.
Repeat after me…
I’ll never borrow money to trade!
Trading is a mental game.
If you want to excel in this endeavour, your mindset must be at peak performance.
But if you borrow money to trade, you erode whatever edge that you might have.
Here’s why…
Trading with borrowed money = Money you can’t afford to lose.
And when you trade with money you can’t afford to lose, you make poor trading decisions because you have the “I can’t afford to lose” mentality.
So, what do you do?
- You shift your stop loss because you don’t want to take a loss
- You take tiny profits because you’re afraid of watching them turn to losers
- You average into your losers hoping to catch the bounce and recover your losses
Eventually, your poor decisions catch up with you and you lose everything (including the money you borrowed).
Now you’re worst off than before because not only are you broke — you’re also in debt.
Do you want this to happen to you?
Then, don’t borrow money to trade.
Repeat after me…
I’ll never borrow money to trade!
It's easier to make $1k from your job than trading.
But it’s easier to make $1m from trading than your job.
That's the power of compounding.
But it’s easier to make $1m from trading than your job.
That's the power of compounding.
The Ultimate Divergence Cheatsheet
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[How to trade like a casino]
Here’s the thing:
Every casino in the world has an edge over the players.
But, why are some casinos more profitable than others? And why do some casinos even go bankrupt?
On the surface, it seems like all you need is a statistical advantage over the players for you to mint money.
But, that’s only one small part of the equation.
You must also figure out how to…
- Attract new customers from competitors
- Retain existing customers
- Incentivize customers to spend more
- Keep your customers happy
- Etc.
Clearly, there are a lot of moving parts and one person can’t manage everything.
So, how does a casino do it?
The secret is this…
A casino has systems for everything they do.
For example:
#1: A casino has a system in place to incentivize their best customers to come back often by offering perks like free accommodations, transport, etc.
#2: All dealers follow a systematic way of playing Blackjack so the casino can consistently increase their revenue (and not leave it to the discretion of a dealer).
Now you might not be running a casino but, you’re managing your own trading business.
So, how do you manage it like a casino?
Well, you must have systems in place.
For example…
Risk management to ensure you don’t lose everything on a single trade.
Source of funds so you can pump in more money to your account and scale up your trading business.
Trading strategy so you have a fixed approach to enter & exit your trades — which improves your consistency.
Research & development so you can build new trading strategies and profit in different market conditions.
In other words, if you want a sustainable trading business that generates consistent profits, then you must have systems in place so your actions are consistent.
Here’s the thing:
Every casino in the world has an edge over the players.
But, why are some casinos more profitable than others? And why do some casinos even go bankrupt?
On the surface, it seems like all you need is a statistical advantage over the players for you to mint money.
But, that’s only one small part of the equation.
You must also figure out how to…
- Attract new customers from competitors
- Retain existing customers
- Incentivize customers to spend more
- Keep your customers happy
- Etc.
Clearly, there are a lot of moving parts and one person can’t manage everything.
So, how does a casino do it?
The secret is this…
A casino has systems for everything they do.
For example:
#1: A casino has a system in place to incentivize their best customers to come back often by offering perks like free accommodations, transport, etc.
#2: All dealers follow a systematic way of playing Blackjack so the casino can consistently increase their revenue (and not leave it to the discretion of a dealer).
Now you might not be running a casino but, you’re managing your own trading business.
So, how do you manage it like a casino?
Well, you must have systems in place.
For example…
Risk management to ensure you don’t lose everything on a single trade.
Source of funds so you can pump in more money to your account and scale up your trading business.
Trading strategy so you have a fixed approach to enter & exit your trades — which improves your consistency.
Research & development so you can build new trading strategies and profit in different market conditions.
In other words, if you want a sustainable trading business that generates consistent profits, then you must have systems in place so your actions are consistent.
The Definitive Guide To Heiken Ashi Candles
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On Balance Volume (The Essential Guide)
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When you have some trading profits, don't upgrade your lifestyle too quickly.
Because when the losses come, they will be a liability to your finances, mindset, and performance.
Because when the losses come, they will be a liability to your finances, mindset, and performance.
How To Catch A Falling Knife (The Essential Guide)
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[Why you lose money with trading indicators]
Many traders don’t know how this game is supposed to be played.
They believe the answer lies in the “right” combination of indicators that will make them rich.
So they buy the latest trading indicators to help them crack the code.
And after many failed attempts, they wonder why they lose money with trading indicators.
Do you want to know why?
Here’s the truth…
Indicators are a derivative of price. They simply indicate to you what has happened, not what will happen.
So, no matter how many different combinations you try, you’ll never be a profitable trader if you solely rely on trading indicators to make your decisions.
Trading indicators are meant to aid your decision-making process, not be the decision-maker.
Many traders don’t know how this game is supposed to be played.
They believe the answer lies in the “right” combination of indicators that will make them rich.
So they buy the latest trading indicators to help them crack the code.
And after many failed attempts, they wonder why they lose money with trading indicators.
Do you want to know why?
Here’s the truth…
Indicators are a derivative of price. They simply indicate to you what has happened, not what will happen.
So, no matter how many different combinations you try, you’ll never be a profitable trader if you solely rely on trading indicators to make your decisions.
Trading indicators are meant to aid your decision-making process, not be the decision-maker.
Discover 19 Powerful Lessons from the Legend, Jesse Livermore
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The government don't owe you anything.
The world don't owe you anything.
The rich don't owe you anything.
Nobody is here to save you.
The good news?
You don't need anybody because you already have all the resources at your disposal—the internet.
You can acquire almost anything skills you want if you put your mind to it.
So go for it.
The world don't owe you anything.
The rich don't owe you anything.
Nobody is here to save you.
The good news?
You don't need anybody because you already have all the resources at your disposal—the internet.
You can acquire almost anything skills you want if you put your mind to it.
So go for it.