In this postI’ve decided to make a small check-list, that I use in my own trading, and that may be useful for you as well. In other words, what do we do step by step when we come to the market with the intention to find a good trade?
We go top-down, from analysis of bigger timeframes to lower timeframes and finally, tick-by-tick action. Of course, our thinking in calm environment, when we do our homework, is different from thinking when we are acting at the «heat of the moment». But prepared trader has more odds of making good decision rather than unprepared one. The only group of traders that can make absolutely no preparation, are pure scalpers.
But now there really a few pure successful scalpers in the world – this trading style has become very tough with the popularity of mechanical trading, HFT algorithms.
1. Important extremes.
Check whether market has violated recently any important extreme – 1 month, 2 moths, 6-months or more. It can be an indication of something significant happening in the market. Short-term traders often avoid trading near such zones, and they of course are not responsible for driving the price against important extremes. They prefer to wait for confirmation and only act after that. I’m saying that if any trading setup has occurred after price had violated any important extreme, this setup can be more valuable and lead to more significant changes in price.
Activity on NZDUSD. Breakout to the downside has occurred after violation of multi-months highs.
2. New announcements and holidays.
Does market expect any news announcements today, what will be the time of news releases? You don’t have to analyze numbers in most cases, but it’s recommended to at least know when news will be released.
3. Wave-like activity
By wave-like activity I assume breakouts initiated in a wave-like style. So, if you have breakout and it is performed in the form of double, or, which is better, triple initiative, it can be a sign of a «new business» entering the market. In most cases, such movements are to be continued in a short-term period.
4. Volatility – low or high?
Has volatility been low or high recently? In markets that are ready to break out, volatility tends to be small. Market prepares for the move, sort of accumulates power, and after that goes in pretty rapid way.
If you Like this blog then Check more information On Supply and demand Imbalance IN FOREX