Introduction

In this article series I will go trough some of what in my opionion are the main factors to be considered in trading, based on my own personal views and experiences, and I will do in a kind of self - introspective way,so please, don't get stressed if for some reasons you find your self in opposite opinions.

Analysis

What are we talking about when we speak of analysis? Some years ago when I started trading, analysis meant this:


What do you see in this chart above? I tell you: it is a compression of data showing market movements during a certain period of time. In this case, every 4 hours, the program will draw the so called "candle" to give us a visual representation, but if we would be able to zoom enough out a tick chart, we would see exactly the same moves. I say this because, I suspect this concept is not really clear to many people: what you see is data compression! Candles are those things we can light up on a romantic dinner with our partners.

There is a level where is more convenient to buy, and there is a level where is more convenient to sell (or not to buy), but how do we determine that level? Is it really so complicated?


Costed me 2 minutes, where 1 minute and 55 seconds were to draw stuff on the picture before attaching it, and 3 seconds calculated on the required time to click on "save chart as image". Let's read all steps:
  1. Our starting point imagine we open for the first time our chart, and there is no price history, since the instrument came from an IPO just today.
  2. Price reached a point where suddendly reversed down: more supply than demand.
  3. Pirce back to starting point: here we know it could be a support: smarter decision is to buy and stop any loss just few points below our entry, and the most obvious target is near point 2.
  4. Price met our target. We could sell. But not certainly buy, since we know from here price could come down.
  5. Price went up and suddendly reversed. We have a new resistance.
  6. We know here price could find demand, but we decide to stay out.
  7. Again we preferer stay out.
  8. Price near resistance, here we decide to sell with a stop few points higher than resistance, and target the support.
  9. Here we target our position. We could decide to buy, but not to keep selling since we know... it is a support already confirmed.
In 10 weeks we could have collected about 1000 pips, with a very small risk ratio. The very same happens every every week, month, quarter, with repeating patterns, and repeating conditions. What really changes is price rate, and our perception.

Correlations


In my opnion, what most affects on people is the difficulty in making correlations. Trading indeed requires the ability to receive a certain number of inputs and elaborate them in order to obtain a decision. Did you ever do one of those kind of test where you obtain an IQ value, based on your answers? I give you an example:


Extremely simple indeed, but still someone will answer B. There are gigabites of examples but another one is as follow:


It is the ability to understand the actual situation, and make a decision based on simple facts which has to be correlated simultaneously. I say this, because trading is really like the examples. If you do not believe on this, let's consider again our example chart in this way:


We open chart and we have a lower support, a resistance and a middle support, with price bouncing off it, but again approaching back. What are we going to do? What is the best decision? Buy in the middle, hoping for price to meet the support and eventually bounce again? Or wait for price to reach support, then decide what to do?

Remember: market always have a second opportunity and if it looks complicated, the best thing is to wait it to be clear, because it will be once or the other. While what people do most, at this point, is to start overcomplicating things by adding more inputs and informations and ending in a loss or in a small probability win. But this is already topic for another article.

Conclusion

Yes, trading is not for eveyone: only those able to keep it simple will have some possibilities to end in profits. All the others, will end in losing will it be in small or large period of time.

I my self, many many many times overcomplicated things, and lost. While best trades and best analysis always came by considering just 2 or 3 factors and correleated them each other.

Thank you for reading and see you in next page.
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