Weekly Trading Lesson: Trend trading is as easy as A,B,C....or is it 1,2,3?

The first step in identifying a trading opportunity is to start with the daily chart to get a feel for the mood of the market. Is the market range bound and bouncing between two general areas or is it trending? This first step leads to what approach should be used when opening a trade.

           If the market is range bound, buying above the support and/or selling below  resistance is the preferred method. If the market is trending up, then we should  only look for buying opportunities and if the market is trending down, then we  should only look for selling opportunities. These trend traders look for what is  called an A,B,C or 1,2,3 formation. A look at the GBP/USD chart below gives a  good example. Point A is the bottom and the start of the trending move up. Point  B is the high of the trending move while Point C is the bottom of the corrective  move against the trend. Where trend traders enter is a matter of personal  preference. Aggressive traders will try to buy near point C and use technical  indicators like Fibonacci retracement levels and Slow Stochastics to help better  time their entry. Notice how the market pulled backed to the 50% retracement  level while the Slow Stochastics dipped below the 20 level as the market pulled  back to point C. This is how these tools should be used. They are much more  valuable when used as confirmation of your analysis rather than as a stand alone  tool. Traders could enter on either signal and place their initial protective  stops below the 61.8% Fibonacci level. More conservative traders will wait for  the market to rally up past point B before entering the market as they prefer to  wait for a signal that the uptrend is intact and the buyers are back in charge  before entering. This is called a breakout as the market moves up to new highs.  While this may mean less in terms of profit as some of the move is over by the  time entry takes place, these traders will be rewarded with a higher win  percentage because they waited for confirmation of the trending move being  intact. So the next time you are looking for a trading opportunity in a trending  market think A,B,C?.or if you prefer 1,2,3. The choice is yours.  Good luck  with your trading!

Thanks so much for the post.It is very helpful