When I gave a presentation a few months ago at the Scottsdale office and the question that came up a lot was do we look at news and financial reports. The question you have to ask yourself is what's really the point of financial news shows or finance articles? The answer is simple: ratings and views. If you want to know where to get into a trade (Buy or Short) and where to get out then skip all that noise and head to the price chart.
When I first started trading my charts were filled with moving averages and indicators, like many of us, I was just trying to find my way. This changed when I first became a student at Landshark and now an educator. Prices in asset classes simply move from support areas to resistance areas and that's it. How do we see this on the charts?
Where do I get a buy signal? Buy signals tend to be a little more simpler when using shares v. options mainly because with options you need to get the timing right.
Where will the buying stop? First, we ask ourselves to find 3 significant targets before we get into a trade, this is part of our Pre-Trade plan in Core Foundations of Trading. Again, we find this on the chart and on the one below we can use a few items to tell us where potential 'reversals' begin.
You can click to expand the charts below
The chart on the left, a daily time frame. The chart on the right, a weekly time frame. The yellow price areas are price gaps mixed with some price levels with the use of Fibonacci. Notice how price tested $34 not once, but twice, then began it's take-off as we call it in CFOT class. But as we know, price simply just does not continue to go straight up without selling. Now sure, the price gap in yellow at $45 is a target, eventually, just not today tomorrow or in a few weeks - by the way, our collective target on this is event is $70 but more on that below.
This is where it get's tricky. I promise this won't be as cluttered as most financial insights just hang with me.
The weekly chart clearly looks bullish (it is, if you know how to read this correctly) but the trained eye on the left chart knows that price on this chart must come back to 're-test' $35-$38. So with a current trade being up $500 an investor can ask, do I take profit here or wait through the selling for a 'longer-term trade?' - And this, this is where trade plans in our programs differ. To the Wealth Management students, it's a hold, for a price target much higher (think $60-$70), however, to the active-trader in CFOT or Advanced Options this constitutes an 'Income Trade' that lasted 6 days. So she or he will take the $500 gain now as an 'Income Trade' then wait for price to come back to test $36-$38 a share and make the decision whether or not to buy again.
While most people on trading forums, Twitter and financial news spend time arguing to make their opinions heard the answer to it really is on the price chart in front of you.
To summarize. We have to understand and develop a trade plan first. This solves the question all of us seek: When do I sell? Second. We have to understand why support and resistance areas are created. While most of the items around us today in the financial space make zero sense, price charts do, you just have to clear through the noise and get to the heart of the matter.
I hope this article helped you.