Importance of day trading plan

Whether you want it or not you do need at least a few rules in your life. There are things that you tell yourself you �should� do, but there must be a few things which you �must do�. If you label everything under should you will hardly achieve anything in life. �I should lose weight, stop smoking, sleep less, work more and etc.) It does not work. Have a few �musts�. The same can be said about day trading. You need a few rules and you must have a trading plan to be a successful day trader. I want to talk a little about it in the post. 

If you do not have a plan you will be ruled by emotional impulses and illogical behavior. You cannot trade on the hunch all the time. Occasional trade is ok, but not regular. Do you get what I mean? I hope you do. Trading rules help you to shape and filter your trading system and keep you from making spontaneous trades. I would say that a bad plan is much better than no plan at all. No army general would go to battle without a strategy and a plan. The same can be said about successful traders. Trading is battle for money. Somebody is after your money and you are after somebody�s. Cruel truth, but truth! 

Before you ever consider of opening a trade you need to look through your plan and see if a possible trade meets your criteria for a �good trade�.

Some of the points you might ask yourself:

Is there some technical pattern that indicates a reversal or continuation? I wrote a number of posts on the topic and the series is not finished yet, but as I wanted to make a short break I decided to write on day trading. Be sure to check my series on chart patterns. 

Is price near support or resistance level? It is very important as it indicates a reversal level if you a security is in a range. 

Is the price close to a trend line (upward or downward)? When price comes to a rising trend line (especially on daily charts) it is very usual for price to find support and jump off the trend line as strong demand comes to market. See how gbp/jpy pair bounced off its� daily trend line when price hit it on the 13^th of June 2013.

Do you see long bullish or bearish candles indicating that support/resistance is strong and you may trade in the direction of the tendency? These candle patterns indicate strong supply and demand areas (or accumulation/distribution zones). I haven�t written on candle patterns yet, but intend to do it after I finish chart pattern series. 

Is the move I see is in the direction of the trend or is it a counter trend rally? Day traders can capitalize on both, but most successful traders trade only in the direction of prevailing tendency. Buying on dips in an uptrend and selling rallies in a downtrend should be a common practice for any day trader.

These are just some of the things that should be on your trading plan. I hope to add more stuff on the subject in my future posts. 

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Related posts:

Day trading strategies and rules for dummies

10 top day trading rules

Day trading tips

Learn day trading

Is day trading for a living possible

Long term or intraday trading

Day trading example with eur/usd

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

http://www.etoro.com/A41516_TClick.aspx 

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

Analyzing chart patterns: pennants

Let me continue my series on chart patterns in the post. Last time I wrote on flag patterns and now I want to discuss about pennants. In the same fashion as flag, a pennant is a continuation pattern. It means that when a pattern is broken you will most often see a thrust in the direction of a previous move. While a flag is a rectangular in shape a pennant resembles a triangle. It should not be confused with triangle as its duration is much shorter and it actually is a short respite before current trend resumes itself. Triangles tend to be longer in duration before they are broken. 

As it is a triangle in shape a pennant has two converging trendlines. This shows that prices are consolidating after a previous move and now the range inside the pennant is narrowing putting pressure for price to go out of the pattern and continue the trend. A pennant will have a pole that would end at the top or bottom of the pattern (depending whether the pattern bullish or bearish) and it marks the point of the first trendline that we expect to be broken. As the prices starts consolidating the second point is made that marks the point from which the second trendline is drawn that will probably not broken and hold counter trend moves. 

Bullish pennants

Bullish pennants are bullish continuation patterns that break out in the upward direction when the consolidation of the pattern is over. A break of the upper trendline is a sign that current trend will resume itself after a short break. One should be ready to jump into a trade at the break of the upper trendline. 

How to trade a bullish pennant

You can look at gbp/jpy chart above to see how the bullish pattern looks like and where you can enter your long trade. After a strong move upwards gbp/jpy started consolidating and formed a bullish pennant in a period of four days (from 27^th of December 2012 till 31^stof December 2012). The breakout point was marked by 139.28 level which the pair reached and retraced a little. So, you should have bought the pair at the break of the above mentioned level. Our stop level was a few pips below the retracement at 138.87. As you may see the pair broke the level and rallied around 350 pips before reversing and forming another pattern: bullish flag. You could exit your position in portions at even numbers (if you had two or three positions) or move your stop loss order by placing them below 4 hour candle clusters till your stop loss was closed when prices reversed. 

Bearish pennants

Bearish pennants are bearish continuation patterns that break out in the downward direction when the consolidation of the pattern is over. A break of the lower trendline is a sign that current trend will resume itself after a short break. One should be ready to jump into a trade at the break of the lower trendline. 

How to trade a bearish pennant

You can look at Gold chart above to see how the bearish pattern looks like and where you can enter your short trade. After a strong move down xau/usd started consolidating and formed a bearish pennant in a period of five days (from 15^th of February 2013 till 20^thof February 2013). The breakout point was marked by 1600.00 (per ounce) level which the security reached and retraced a little. So, you should have sold Gold at the break of the above mentioned level. Our stop level was ten bucks above the retracement at 1610.00. As you may see the pair broke the level and collapsed around 45 bucks before finding support. You could exit your position in portions at even numbers (if you had two or three positions) or move your stop loss order by placing them below 4 hour candles till your stop loss was closed when prices reversed. It may have been around 1563 area. 

Conclusion

A pennant is a continuation pattern that might help you to enter extra positions in the direction of the trend or open your first one if you accidentally missed the initial move. The pattern indicates that the security is in a stage of rest (consolidation) and the prices will move pretty soon. In forex market pennants often last five days or even less and present you with great trading opportunities. 

Ok, I will finish now. Be sure to read related articles to learn more on technical analysis. I promise to expand on this in my future posts. 

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Related posts:

Analyzing technical patterns: flags

Wedge technical pattern

How to do technical chart analysis

Six key elements of technical analysis

Triangles

Head and shoulders

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

http://www.etoro.com/A41516_TClick.aspx 

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.