The Basics of Trading

This is a discussion on The Basics of Trading within the First Steps forums, part of the Reception category; Hi all. First things first. Chartman, I can tell it’s been a long time since you traded EOD. Line charts ...

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Old Feb 2, 2003, 11:47pm   #41
 
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FTSE Beater started this thread Hi all.

First things first. Chartman, I can tell it’s been a long time since you traded EOD. Line charts are fine for 1 minute data, but useless for EOD charts - Unless your one of these newspapers who enjoy doing a dot to dot chart on the FTSE 100 to show all the people in the street what has happened

Hi Splurge

Thank you for your kind comments, and for any new traders out there, I think Splurge sums up how important this subject is.

Hi Fluke.

What JonnyT is saying is that the price has dropped quite a way and eventually the selling pressure runs out and people start buying it back up again, and after a major sell-off, you don’t want to be shorting because it could turn at any time. In the short-term it looks like it might bounce, and as Chartman pointed out there is some divergence. Which is something I will be looking at in a couple of weeks time.

Chartman makes a very good point. As I just said, we can’t really go short, and as Chartman says, the risk is too high to go long. We can’t trade BAY at the moment, so we look for a “Safe entry” or a point at which the risk / reward ratio comes into our favour. This is where the waiting comes in, it could take weeks for the price to enter a safe trading zone, but then the markets reward good safe entries, and not the gun-hoe approach.

My personal view on the chart is this.

Click the image to open in full size.

The support level (Which now becomes resistance) is at 130. So say the price hit 130 and started to fall again, to say 125. If you short at 125 then the risk / reward profile looks like this:

Entry Price: 125
Target: 100 (the last low)
Stop-loss: 133 (3 points slippage to give the price space to move around).

Reward: 25
Risk: 8
Giving a ratio 3.125:1


Getting to grips with Risk / Reward is hard, and its something that is not learnt overnight, so if anyone wants help with Risk and Reward, then post up a chart with your view on the risk and reward, and I’m sure someone will have useful comments to add. Remember we are all here to help each other.

Fluke, try your hand at the chart for BOC over the last 7+ months. Post a chart up, and we’ll see how you get on. Remember there is no wrong answer. If you would rather not post up a chart (and this goes to everyone) then feel free to email me at ftsebeater@btopenworld.com , but if you can post a chart up, then others can learn from it as well
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Old Feb 3, 2003, 10:06am   #42
 
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It's interesting to note my first resistance lines on the first chart
line up with the Fib lines on the second chart.
It looks like a reversal is taking place possibly on the strength of the positive survey carried out by Opodo ,an online travel service,
Bill
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Old Feb 3, 2003, 10:08am   #43
 
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and the second chart
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Old Feb 3, 2003, 11:01am   #44
 
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Ftse, I agree about the line/candle, but I wanted to show the Divergence in Nov 99 and line charts give a cleaner look....
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Old Feb 3, 2003, 8:13pm   #45
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Hi FTSEB.
I cant thank you enough,I have understood you explanation,this is exactly what i need to get my head round. I will look at the BOCchart and come back to you.By the way,I thought the 130 level was resistance,you said it is support. Im not criticising you,just making sure I understand how you work.
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Old Feb 4, 2003, 8:45am   #46
 
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FTSE Beater started this thread DOH!!!!!

Yes I meant Resistance. If something is old support which gets taken out (as it has on the BAY chart), then it becomes resistance when tested.

I've edited the post now
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Old Feb 5, 2003, 2:43pm   #47
 
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Thumbs up Re: The Basics of Trading

Thanks to FB this is really good stuff.

I think one important lesson to come out off the last series of postings is the fact that not trading is sometimes hard to do.
I wonder how many people studied your chart and were desperate to find an excuse to trade it.
Beware of trading for trading's sake. I think the post by chartman highlights this, we all need to sit on our hands sometimes and wait and watch.

Nick
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Old Feb 5, 2003, 6:30pm   #48
 
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FB this is good stuff, thanks.

I think one good lesson that has come out of the last series of postings about BAY is not to over trade.
I wonder how many people looked at your chart and tried to make a trade for tradings sake. Sometimes we need to sit on our hands and just watch and wait for positive signals to trade and not make the chart fit our desire to trade.
Avoid overtrading.

Nick
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Old Feb 5, 2003, 9:08pm   #49
 
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FTSE Beater started this thread Hi Monarch

The overtrading aspect of risk and reward is something that I hadn't actually thought of.

Risk / Reward really shows when to get in and when to stay out. Most of the time as traders, your watching a stock to set-up and being patient enough to allow the trade to come to you is something that new traders struggle with

Thanks for pointing that out Not sure it was important enough to post twice though
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Old Feb 6, 2003, 3:23pm   #50
 
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hi ft
is there a formula to calculate the risk / reward is just divide this two factors or there is another way?
thanks...
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