Technical analysis

Today I want to look at technical analysis of precious metals and other commodities.

Technical analysis of crude oil, October 1, 2017

This is a weekly chart of crude oil:

Description:

The chart is heading up towards the descending trend line and right now it sits just at it. From now on it will be interesting to see where prices will be going, if they go up or down. If they go up they could rise fast, but my hunch is that they will go down from here.

 

Technical analysis of gold, September 23, 2017

This is a weekly chart of gold:

Description:

The chart broke out of a descending trend line a few weeks back. Now it has hit the trend line again, but from the upside this time. We have to wait and see what happens on Monday morning, but normally I would consider this chart pattern being a buying opportunity.

Technical analysis of crude oil, September 14, 2017

This is a weekly chart of crude oil:

Description:

The chart is caught between two opposing trends: One descending trend line above and one lateral trend line below. Prices are now pushing up agains a rising 50-week moving average which makes a break-through likely.

 

The bullish scenario:

In this scenario prices go through both the 50-week moving average as well as the descending trend line above.

This scenario is fairly likely. I would give it a probability of 70 per cent.

 

The bullish/bearish scenario:

In this scenario prices falter at either the 50-week moving average or the the descending trend line. Given the chart pattern I don’t believe it being very likely. I would give it a probability of 15 per cent.

 

The bearish scenario:

This is where prices go south from here. I would also give such a scenario a probability of 15 per cent.

 

 

Technical analysis of gold, September 9, 2017

This is what a gold chart looks like:

Description:

We have a breakout!

Now there is nothing holding gold back and all the resistance is gone.

But would I be buyer at this stage?

Probably not. I would prefer to wait for a pull-back down at the descending trend line.

But essentially this is good news if you are bullish on gold.

 

Technical analysis of crude oil, September 3, 2017

This is what a chart of crude oil looks like:

Description:

We are still caught between the 50-week moving average and the 100-week. It looks as though the chart hasn’t really decided for which trend to follow.

The bullish case:

In this scenario prices bouncing off the 100-week MA and continue up through the 50-week and the descending trend line.

The bearish case:

In this scenario prices are falling through the 100-week MA and continue through the lateral trend line that is drawn in Figure 1.

I would give both these scenarios a probability of 50 percent at this stage.

Technical analysis of gold, August 24, 2017

This is what a chart of gold looks like:

Description:

The chart is squeezed between two opposing trends. The 100-week moving average is acting as support.

The bearish scenario:

In the bearish scenario prices falling down from here and then go through the rising 100-week moving average. I would give such a scenario a probability of 10 per cent.

The bearish/bullish scenario:

In this scenario prices are falling down to the 100-week moving average, but then they rebound and go higher. I would give such a scenario a probability of 30 per cent.

The bullish scenario:

In this scenario prices go through the descending trend line that is acting as resistance in the chart. I would give such a scenario a probability of 60 per cent.

Technical analysis of crude oil, August 17, 2017

This is what a chart of crude oil looks like:

Description:

Looking at the chart it becomes clearer to me that it is in a head-and-shoulders-pattern. The chart looks heavy.

The bullish scenario:

In the bullish scenario prices find their footing at the 100-week moving average and then move higher. Given the current chart pattern I would give such a scenario a probability of 15 per cent.

The bearish scenario:

In the bearish scenario prices along their current path and go lower. That means that they will penetrate through the 100-week moving average without any resistance. Given the chart pattern, I would give such a scenario a high probability of 85 per cent.

Technical analysis of crude oil, August 5, 2017

This is a weekly chart of crude oil:

Description:

The chart is getting squeezed between one supporting trend line (below) and another putting pressure on prices (above). Furthermore, there may be head-and-shoulders pattern building up in the chart.

The bullish scenario:

In the bullish scenario prices are supported by the 50-week moving average and move up through the descending trend line.

At this point I would put a ten per cent probability on that happening.

The bullish/bearish scenario:

This scenario is where prices move up and kiss the descending trend line but then move down.

I would give such a scenario a probability of ten per cent.

The bearish/bullish scenario:

This is where prices simply fall down and plunge through both the 50-week and the 100-week moving average. When prices finally hit the horizontal trend line then they rebound and continue within the trading range.

I would give such a scenario a probability of 75 per cent.

The bearish scenario:

In this scenario prices are simply plunging through both moving averages and then also the lateral trend line in the chart.

I would give such a scenario a low probability of 5 per cent.

Technical analysis of gold, July 31, 2017

As usual, this is a weekly chart of gold:

Description:

The chart is caught in a pennant like pattern with prices edging up against a declining trend line.

Prices are further lifted by the rising 100-week moving average (dotted turquoise line).

The bearish scenario:

In this scenario prices rediscover gravity and fall down from here.

That happens despite the rising 100-week moving average.

Because this is not very likely I give it a probability of 15 percent.

The bullish scenario:

In this scenario prices are moving up and through the declining trend line.

This is a likely scenario given the current chart pattern. I would give it a probability of 40 per cent.

The bullish/bearish scenario:

In this scenario prices move up and touch the declining trend line, but then fall down.

This is also a likely scenario and I would give it a probability of 45 per cent.

Technical analysis of gold, July 24, 2017

This is a weekly chart of gold:

Description:

The chart is in a classic pennant where it is pushing up on the descending trend line above.

 

The bullish scenario:

In this scenario prices go up from here, but they don’t stop at the upper trend line but continue through.

I would give such a scenario a probability of 50 per cent.

The bullish/bearish scenario:

This scenario is very similar to the one above.

The only difference is that prices stop at the declining trend line and continue down.

I would give such a scenario a probability of 40 per cent.

The bearish scenario

In the bearish scenario prices are rediscovering gravity and go down from here.

Because it is not very likely I give it a probability of 10 per cent.

Technical analysis of crude oil, July 19, 2017

This is a weekly chart of crude oil:

Description:

The chart is extending its right shoulder in a head-and-shoulders pattern. The chart looks heavy and I believe it will go lower from here.

The bullish scenario:

In the bullish scenario prices defy gravity and go up from here. I would give this a low probability of 5 per cent.

The bearish scenario:

In the bearish scenario prices go down from here. Given that the chart looks heavy I would give this a high probability: 95 per cent.

Conclusion:

The chart looks poised to go lower with a head-and-shoulders pattern developing.

Technical analysis of crude oil, July 13, 2017

Description:

The chart looks heavy with a left shoulder, a head and a right shoulder. This is usually a sign of the chart going lower from here.

Furthermore, prices are being pushed down by the 100-week moving average.

The bullish scenario:

In the bullish scenario prices defy gravity and edge higher from here.

I would give this a probability of 15 per cent.

The bearish scenario:

In this scenario prices are indeed being pushed down by the 100-week moving average.

Given the current shape of the chart, I would give this a probability of 85 per cent.

Conclusion:

My reading of the crude oil chart is that it is likely to go lower from here.

Technical analysis of gold, July 6, 2017

This is a weekly chart of gold:

Description:

The chart is caught between a descending trend line and a rising 100-week moving average.

The bullish scenario:

In this scenario prices are pushing up against the descending trend line and then through it.

Given the chart pattern I give this a probability of 65 per cent.

The bullish/bearish scenario:

Here prices are advancing up but then they go down at the trend line.

I would give this scenario a probability of 20 per cent.

The bearish scenario:

In this scenario prices are inexplicably going down from here.

I would give this a probability of 5 per cent.

The bearish/bullish scenario:

Here prices fall just like above, but when they reach the ascending trend line they change direction and head up.

I would give this a probability of 10 per cent.

Technical analysis of crude oil, July 1, 2017

This is a weekly chart of crude:

Description:

The chart is getting squeezed between two opposing trend lines. The one above is descending while the one below is lateral.

If we wait a couple of weeks we may see head-and-shoulders pattern forming.

The bullish scenario:

In the bullish scenario prices continue on their upward path that began this week (I didn’t believe that it would).

I would give such a scenario a low probability of 10 per cent.

The bearish scenario:

In this scenario prices are being pushed down the 100-week moving average.

I would give such a scenario a high a probability: 90 per cent.

Conclusion:

The chart looks bearish. We’ve tested the lateral trend line several times the past six months and in my opinion it will fall. The question is how deep.

Technical analysis of gold, June 26, 2017

This is what a weekly chart of gold looks like:

Description of chart:

Prices are now sitting on a declining 50-week moving average. If they go up from here they will face overhead resistance in the form of a descending trend line and if they fall they are likely to be caught by the ascending 100-week moving average below.

The bullish scenario:

In this scenario prices are being saved by the 50-week moving average that will act as support. After that they will then continue through the descending trend line.

This is an unlikely scenario because of the nature of the chart pattern.

I would only give this scenario a probability of 10 per cent.

The bullish/bearish scenario:

This scenario is as the one above with the difference that prices stop at the descending trend line and go down from there.

I give that scenario a probability of 30 per cent.

The bearish scenario:

In this scenario prices go down all the way through the 100-week moving average and the ascending trend line.

This is unlikely to happen but nevertheless I give it a probability of 5 per cent.

The bearish/bullish scenario:

In this scenario prices first fall but are then caught either by the ascending 100-week moving average or the ascending trend line below in the chart.

I would give such a scenario a probability of 55 per cent.

Technical analysis of crude oil, June 21, 2017

This is a weekly chart of crude oil:

Description:

The chart has been in a pennant until a few weeks ago. Now all the resistance in the chart is gone.

The bullish scenario:

In this scenario prices neglect gravity and head up from here without sensing any downward pressure.

While this scenario is not impossible, I don’t consider it likely.

I would give such a scenario a probability of 1 per cent.

The bearish scenario:

In this scenario prices go down because there is no resistance left in the chart.

At this juncture this is the likely scenario.

I would give such a scenario a probability of 99 per cent.

Conclusion:

It seems likely that we are going to fill up our cars cheaply this summer.

Technical analysis of gold, June 19, 2017

This is a weekly chart of gold:

Description:

The chart is in a pennant, currently on its way down, and once it breaks out of the resistance or the support, the move will be violent.

The bullish scenario:

In this scenario prices head up from here and break out of the resistance that is weighing on the upside.

Its not an unlikely scenario, but I would only give it a probability of 20 per cent.

The bearish scenario:

In this scenario prices go down from here. This is the more likely scenario given how prices have moved lately.

I would give such a scenario a probability of 80 per cent.

Conclusion:

In the short-term prices are likely to continue down, but in the medium-term it looks as though they are moving up. The reason why I say this is because prices have been knocking on the upper resistance zone at least twice recently. It would surprise me if they did not succeed to go through at some point.

Technical analysis of gold, June 12, 2017

This is what a weekly chart of gold looks like:

Prices sit just at the descending trend line and depending upon where they move from here will determine their movement for a long time.

The bullish scenario

In this scenario prices are slowly edging their way through the descending trend line.

If the resistance is gone prices have no immediate thing stopping them from much higher.

In favor of this is the fact that we are above both the 50-week and the 100-week moving averages.

Given the lower high made in February, I’d still give such a scenario a probability of 40 per cent.

The bearish scenario

In this scenario prices are headed lower from here.

The arguments for lower prices are the same as above.

I would give such a scenario a probability of 60 per cent.

Technical analysis of crude oil, June 09, 2017

This is a weekly chart of crude oil:

Summary:

Prices have now come down again and are now pushing against the ascending trend in the Figure 1.

The bearish scenario:

I will begin with the bearish scenario. This is where prices fall down through the ascending trend line and then continue down. At this point I would give such a scenario a probability of 65 per cent.

The bearish/bullish scenario:

In this scenario prices first go down but then rebound once they hit the trend line below. This is not implausible and I give such a scenario a probability of 30 per cent.

The bullish scenario

This is where prices shoot straight up from here. Given recent trends I don’t consider it very likely and I would give it a probability of 5 per cent.

Technical analysis of gold, June 05, 2017

This is what a weekly chart of gold looks like:

What we are seeing is that prices are coming up towards the descending trend line.

The bullish scenario

In this scenario prices are going through the declining trend line and then continue up beyond.

Given that the 100-week moving average is slightly ascending, I would give such a scenario a probability of 70 per cent.

 

The bearish scenario

In this scenario prices are going down from here.

While a distinct possibility, I only give such a scenario a probability of 30 per cent.

If you want to learn the basics of technical analysis you can do that here.

Technical analysis for beginners

Welcome to another blog post by me, LJ Nissen. In this guide we are going to be talking about technical analysis for beginners.

(This is part 1 of a series of articles. You can find part 2 here. If you want to learn more about technical analysis of individual precious metal charts, you can do that here.)

When I first started out trading a few years ago there weren’t too many resources available for rookie traders.

Sure, there were tips on which stocks to trade and how to do it with technical analysis, but not from a point of view where the whole situation was considered.

As a result I made enumerable mistakes where I lost almost all my money – doing what I otherwise really wanted to do.

The situation felt awkward.

After many years working in a very interesting field – scientific research – I had finally found my passion, but now I couldn’t do it because I didn’t have the resources.

It felt frustrating so in this article I wanted to change that.

Here I want to help you find your way around the technical terms used when trading stock.

I would like to give you a bottoms-up guide of the whole process.

A process that will span everything from your personal finances and online brokers to methods of trading that are good for beginners.

So let’s dive in!

 

Where you are at

If you don’t mind, I’m going to start with a few assumptions that I make about you.

The reason for me doing so is that it helps me as author of this guide to help you with technical analysis.

The assumptions are probably not completely correct, but close enough for you to have an interest in what I write:

 

1. I’m going to assume that you still have your day job. That is a good thing, because it limits your trading to a level where you can consider it a hobby and not a full time job. It also pays your bills – at least food and rent -so that you don’t have to pay those from your trading account.This is positive from a trading perspective.
2. My second assumption is that you’ve already dipped your toes into the stock market. Maybe you have made a little bit of money investing or trading and now you are eager to learn more. The money you have made may not be too much, but enough to whet your appetite. And now you want more of the same, but you don’t know where to find the information needed to continue.
3. My third assumption will be that you don’t yet have the skills in technical analysis needed to become a successful trader. Of course, they are important if you want to become a trader, but how do you get them if you haven’t had anybody teaching you? Don’t worry! I will go through those in this article.

 

I’m also going to assume that you at least have a basic understanding of how the internet works.

Even if these assumptions are off by far you will get value out of this article anyway. So please continue reading!

 

Part 1 – The basics

One big advantage that you have when you are betting on the race track over somebody trading is that you always bet a fixed amount.

You go up the counter and put a 20 dollar bill to bet on a specific horse in a specific race and then you watch the horses run.

What will happen if your horse does not win?

You will only have lost your 20 dollars.

When you are trading you do not have that advantage. If a trade goes against you, you can lose more money than anticipated.

That is why trading the stock market can be a very dangerous game if you have people that are financially dependent on you.

So what you need is a system where you know in advance how big your gains and losses will be.

What the systems does is that it takes the emotion out of your trades so that you can focus on executing them.

There are several systems that you can use.

What I will propose in this post is a system that works for me, but it may be that you have come up with a better one.

The point being that you need to limit your losses and maximize your gains and the only way to do that is by being systematic about your trades.

That is the only way to make money consistently.

My first advice if you are only starting out is to start small.

My recommendation would be to start with a minimal account of 10000 USD.

In that way you will have a good balance between making gains and limiting losses.

The amount is small enough so that you can live with the losses that you will inevitably make while learning.

At the same time the amount is big enough so that you can feel the gains when you make them.

That is the main reason why I don’t like to trade with demo accounts.

After all what’s the point in trading if you don’t reap the rewards?

The problem if you are using a too small amount is that you will not be able to reap the rewards of a good trade when you make it.

Similarly if you are using a too big amount to start with you will feel stressed every time a trade goes against you.

This is the mindset that you need to learn:

 

Not all of your trades will be beneficial and some of your trades will go against you.

 

Of course, the opposite is also true in that you can also expect some gains, but this should not be a cause for being cocky.

Another thing that is crucial when trading is to keep a record of each trade.

That can be a hand written journal in a file or in electronic form. It really doesn’t matter.

That way you can go back and review what had happened to a particular trade, when you got out of the trade or if you were stopped out.

In this way trading is a lot like doing experiments in the lab (my former profession).

The most important thing in research is the lab journal and the same goes for trading.

In the journal you should always note things like date and time, points of entry and exit and how much money you had put into that particular trade.

I cannot stress the importance of the journal strongly enough. Please keep one for your own sake.

That way you can go back to your trades, review them and see what worked and what did not work and why.

 

Now, companies usually report their earnings four times a year and the price swings happening after those results have been published can be violent.

Those price swings are not coming from the results themselves but from the expectations of the results.

For example, if the market expects company ABC to have consistently good earnings, but ABC misses slightly on earnings growth, the sell-off that can follow may be violent.

Under those circumstances you don’t want to hold your stock and it is better to get out.

 

Part 2 – The specifics

 

If there is one thing that I have learnt in life it is that we all need systems in order to function.

It can be a system of movements that you are performing every day when you are in your car or it can be a system when dealing with your daily chores.

It doesn’t matter what it is. We all need systems to make life easier.

This is especially true when you are trading.

Well, for one you need a system that will limit yourself to the downside as well as to the upside, but the bottom line is that you need those rules in order to function.

What does not work is to live life without the constraints of rules. Then everything from cleanliness in the house to a healthy food intake will start to fall apart.

So what rules can be applied to trading?

In essence, we need a system where we can:

 

• Limit our losses, and
• Maximize our gains.

It is as simple as that.

Trying this out, the best thing that I’ve come up was developed by Quint Tatro of Tatro Capital.

Experimenting with this back and forth, the method is what I now call the “3-step” method.

What you do is that you set aside a small percentage of your account for each trade.

That will be a small amount in the order of magnitude of 0.5% of your total account.

It is very important that you do not exceed this amount under any circumstances.

Remember that your money is the life blood of this business.

By using technical analysis you will then be able to identify where to get in and – most importantly – where the particular trade is no longer viable.

That point will be your stop.

Now, whatever happens always respect your stops.

That point cannot be stressed enough.

You don’t want to find yourself in a situation where you lose copious amounts of money and only seeing the losses getting bigger and bigger by the hour and minute.

Now the advantage of doing this is that you can then calculate how much you would lose if the trade goes against you and you reach your stop.

That way you know exactly how much you are betting. In this way, trading gets similar to the race track.

So let’s get into some numbers.

What I prefer is to use a spreadsheet for this purpose, but you can do it any way you want.

The calculations will look something like this:

Figure 1. Spreadsheet of entry and exit points when using the 3-step method of trading stocks.

In Figure 1 you can see how we plan our trade.

We will get in at a particular price, in this case 9 USD.

Now if the trade does not go in our favor we will be stopped out 8.5 USD.

What we will then do is to calculate the differential between our entry point and our stop and add that value to our entry point.

In this case it would be:

9.0 USD – 8.5 USD = 0.5 USD.

If we add this to our entry point we will have what I call 1x.

Then when we set up our trade we can define at which point we will get out.

What you will then do is to get out at three instances: 1x, 2x and 3x.

We take one third off at each exit point.

Now we have set up a system that:

 

1. Will have made sure that you have defined the amounts involved before acting on the trade.
2. Allows you to take the emotion out.

 

These are the two main characteristics that we want from a trading system: The ability to know how much money there is at stake and to be able to sleep at night.

The method may seem awkward at first but when you get used to it, it becomes second nature.

Please take a few moments to familiarize yourself with the steps before implementing them.

Part 3: The technicals

 

Now we have come to the part where I will introduce you to the technical patterns involved in trading.

Of course the charts themselves are not a prediction of how the market will behave, they will merely lay out what is probable based on experience.

The moving average

My favorite technical indicator is the moving average.

What the moving average does is that it takes the average opening and closing values and plot them in a curve that will be displayed in the chart.

When looking at charts I usually display three moving averages which are good for different purposes.

I’m using the 10-period, the 20-period and the 50-period moving averages.

In Figure 2 there is an example of what I mean.

 

Figure 2. Weekly chart of the exchange traded fund GLD in August of 2015. The 10-, 20- and 50-period moving average are shown in yellow, red and blue, respectively.

When I look at a weekly chart, the intermediate term movements will be determined by the direction of the 50-week moving average.

Similarly, the 10-week moving average will tell you more about the direction in the short term.

Now, the 10-week moving average is for all intents and purposes similar to the 50-day moving average.

If your stock is trading above the 50-day moving average it is a bullish sign near term.

If, on the other hand it is trading below the 50-day moving average it is bearish.

The 10- and 20-period moving averages are useful for looking at the movements that are extremely near term and personally I don’t find them to be particularly useful.

Resistance and support

One thing that must be grasped with chart movements is the concept of resistance and support.

This goes back to the mass psychology of the markets and tells you when the last trader is changing his or her position.

A resistance zone will appear when there are enough traders willing to sell stock at a particular level.

Similarly, a support zone appears when traders are willing to buy at a particular level.

Let me illustrate what I mean with a chart.

In the chart, a support zone is found at the 100 USD level and similarly a resistance zone is found around 200.

 

Figure 3. Chart of the ETF BOIL illustrating the concept of resistance and support zones.

 

When a support or resistance zone is then finally broken, the chart will move out of the zone without hindrance and the moves can be violent.

Again, mass psychology can explain what happens.

There is no one willing to buy the ETF beyond the 230 level and once it drops below support at the 100 USD level it will quickly move down to a new support level around 40 USD.

 

The pennant

 

One of the more effective chart patterns is a reflection of the above, the pennant.

In the pattern, a resistance zone and a support zone is gradually merged together reducing the volatility in the trading of the stock.

What it means is that buyers and sellers are gradually moving closer to one another and when one of those finally gives way the move will be particularly violent in either direction.

Figure 4. Daily chart of the dollar index, DXY0, illustrating the concept of a pennant.

 

Resistance and support zones are here represented with converging straight lines.

 

Head and shoulders

 

Head and shoulders patterns appear when discrete moves out of resistance/support zones can be observed.

The chart may first have broken out of resistance only to find itself with a new level of resistance higher than the first where it is then trading for a given amount of time.

If it cannot hold this level and falls back to the first level it will find that the old level of resistance is now support and the chart will move sideways for some time.

What then happens is that this support zone is gradually giving way and when it is up the chart action will be particularly violent.

The fall can then be semi-quantified in that the move from the first resistance zone to the second (left shoulder to head) will also apply to the right shoulder.

In Figure 5 there is an illustration of the chart action.

 

Figure 5. Head and shoulders chart action. The zone of resistance of the left shoulder is represented to the left, the head in the middle and the right shoulder to the right. The distance, d, between the left/right shoulder and the head can be applied to quantify the size of the move.

 

Conclusion:

 

In this article I’ve been talking about the need to start small if you are an aspiring trader and want to start out with technical analysis.

If you are a beginner I suggest you to use somewhere between 8000 and 10000 USD in your trading account.

That amount is big enough so that you limit your losses when they occur and at the same time lets you dip your toes into the gains that can really be made.

What I’ve also been talking about in this article is the need for a system that takes the emotion out of your trades.

The best system that I have come up with is what I call the 3-step method of trading stocks.

What it does is that when a particular trade is identified a small percentage – usually 0.5 % – of your total trading account is committed.

The first thing that you then do is that you identify your stop which will be the point where you will have to admit failure and move on.

Not to do this is a very dangerous game so always respect your stops!

You will then measure the distance between the stop and the entry point in the chart to identify the 1x, 2x and 3x points which will be your exit points.

I have also talked briefly about different chart patterns. What they mean, their limitations and how you can use them to your advantage.

 

If you’ve read this whole text and want more of the same please sign up for my newsletter!

That way you will get information first hand on when I release new products and content.

It is very easily done. You can do it here.

 

Published August 20’th 2015.

The 1,2,3-method of trading

Today I want to explain in more detail what I mean by my 1,2,3-method when it comes to trading.

How come some people always seem to be able to put a cooler on their nerves and consistently make money trading?

Is it because they have special abilities that you don’t have and never will have? Or is it because they are unbelievably lucky when it comes to trading and always bet on the right horse?

No. It’s because behind successful trading there are rules that they strictly adhere to.

These rules don’t come out of the blue, and have in fact often been learned the hard way by people in the business.

It may seem easy to stick to a number of rules, but I can tell you from my own experience that it is not.

This is why I’m writing this article. So that you don’t have to make the same mistakes as I have throughout the years and can start right away being what you really want to become – a successful trader.

I call my method the 1,2,3-method.

By adhering to my rules you can completely remove the emotions that inevitably surround the business of trading and focus on identifying the right moments to enter and get out of a trade instead.

The method is modified from Quint Tatro’s trading method which he has shown to be very successful in his career.

In this post I will lay out the fundamentals of a successful trading strategy and show you how you can consistently make money in the market.

What do you need?

As a minimum you need an internet connection, a trading account and some money on that account.

The trading account does not need to be advanced. The only thing required is an account that automatically buys and sells your stock at a given price level.

How much money you have is up to you, but I would advice against trading with less than $200,000.

If you have less than that you can still trade, but it’s difficult to use the economies of scale that present themselves when you have those $200,000 in your account.

In other words, you can trade for fun with less than $200,000, but not for a living.

You then need to use software that represent the different charts that you will use as a basis for your trading.

The best free software that I have found is called FreeStockCharts.com and that allows you to customize the charts in a way that best suits you.

They also have a paid version which obviously is better, but if you are just starting out you don’t need anything else than the free version.

So what is the method really?

In essence it’s about quantifying your risk.

Let’s say that I’m prepared to lose $500 on each trade.

Then I look at the chart and identify the price level where I want to get in as well as the point where I deem my trade to be a failure.

That is where I put my stop.

I then buy exactly so many stocks that my final loss will be $500 if things go bad.

That way I know before hand how much money I will lose if things don’t turn out the way that I want.

That means that I have mentally prepared myself for a loss of $500.

It’s the equivalent of betting on the race track, because if the horse that I have bet on will not win, my money is lost.

That is one of the advantages betting on the race track has over trading the market.

1, 2, and 3

If the stock goes the other way (which it should given the odds), I take a third off the table when prices have advanced 1 x the risk.

For example, if I get in at $10.00 and my stop is at $9.00, then 1 x is at $11.00.

The second third, I take off the table at $12.00 and the final third at $13.00.

By knowing beforehand when and where I will leave the trading, I don’t have to play with my own emotions.

Trading is difficult enough as it is. Don’t let yourself be your worst enemy.

That’s it. Enjoy your trading.

This post is a follow up on my guide on how to use technical analysis in trading.

Conclusion:

Today I’ve tried to explain how I personally approach trading and I do it with a method that I call the 1,2,3-method of trading.

It’s about recognizing that you are your own biggest enemy and that you have to manage your own risk.

You do that by taking the emotion out of your trades.

First I identify where my trade is no longer regarded a success. That is where i exit.