August Review

Following trading rules I learned this month:

• There a 6 phases of a trend:
  

1. The breakout, a quick move where its often wise to cash in the profits at the end of the day
2. Test of the breakout, people are trying to buy at a better price, this is the true swing entry point
3. The correction, after some days or if 1:1 risk/reward ratio has been reached, some trader make profits causing the prices to reverse
4. After the correction is over another move in the direction of the trend happens (this is why there are seldom V-Bottoms)
   
5. When 100% extension or minor swing high or low is hit prices reverse, this is the true swing exit point
   
6. If prices go through double bottom or top there is another chance for the 3rd move down.
   

What makes the right entry and exit challenging is combining all kinds of support and resistance level and trendlines to form a structure of the market and then enter where the lowest risk compared to the first target is. The market is seldom trending so lots of opportunities to day trade but very seldom trades last several days.

• The 2nd thing I learned is comparing instruments before taking the trade, as it makes no sense to go long AUDUSD, EURUSD, GBPUSD all at once, but better choose the instrument that is the strongest and/or has the best risk/reward ratio. What makes sense is comparing if all of the instruments reached there target before anticipating a reversal (for example USDJPY reached today its target, GBPYJPY and GBPUSD already last thursday)
  
  
• The 3rd important rule would be to exit once the Williams % R (10 period) goes over -25 and place a buy stop above the high in case next day the rally continues. Opposite for short trades.

• On a short period timeframe a good method to catch tops and bottoms would be to exit with a limit order on the low of the bar that broke the downtrend.