Within the trading environment, many strategies exist as a way to determine a path to profitability and many new market participants might be under the false impression that these trading strategies come with a 100% success rate, leaving the trader with no (or little) chance of realizing a loss.
As legendary money manager Peter Lynch once remarked:
“In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten“.
Today I want to have a look at 3 technical trading strategies that have a fairly high probability of success:
#1. The 200-Day Moving Average
On the trading desk chat forum last week we were having a discussion around trading strategies, using a recent example in Woolworths Holdings ($JSEWHL).
Using the long term chart, we had a look at the moving averages and how that would be a guide to whether a trader could either go long or short.
Going back to 05-Nov we see the share having peaked at R108 after appreciating from R79.35 one year prior. As a result of the weak Rand coupled with a high valuation, the priced started to decline. Here we saw the price crossing below it’s 200-day moving average, while the 50-day moving also crosses below this level.
This is commonly referred to as a “death cross” which is a long term sell signal. This occurred during the last week of January 2016 which subsequently saw a long term downward trend commence. During the second week of February 2018, we saw the opposite happen where we saw a “golden cross” occur – this being the long term buy signal.
While the new long term buy signal has triggered, we may see a consolidation around this level. The share will also have to overcome the downward trend line in place from the peak at R108 to reclaim the bull trend.
So, next time you open your charting package, don’t forget to add that 200-day moving average.
#2. Channel Support and Resistance
From time to time prices move in a defined range, attracting buyers and seller at key highs and lows. At times this occurs within a channel that could move in an upward, downward or sideways range.
Over the last two and half years, we have seen a perfect example of this with Curro Holdings, a share that has traded in a sideways to downward channel.
The top of the channel has created an opportunity to sell the share while the lower boundary of the channel could have been used to accumulate shares for a bullish move. These levels, along with other factors represent ideal opportunities for traders to participate in a high probability setup.
#3. Rising and Falling Wedge
This has to be one of my favourite setups, as they have such a high probability of success.
Recently we saw this with Nampak, where a falling wedge pattern had developed since the second week of January 2018. Upon an upside break of the wedge, we saw the price push higher, appreciating over 10% in 4 trading days.
Prior to this we saw a rising wedge develop from September to October 2017, which was followed by a resumption of the downward trend.
To participate in some of the trade ideas and strategies, please get in touch with our trading desk.
Here’s to profitable trading,
Trading Desk Analyst
You’ve probably heard that when it comes to trading you should play your strengths?
I bet you’ve most likely read this in trading psychology articles.
The only problem is that these articles focus on minimizing weaknesses, rather than identifying and improving your strengths.
You see there’s a common notion that when you tackle your weaknesses you automatically enhance your forex trading performance…
But let me tell you that isn’t always the case.
That’s why I want to show you a different approach by building your strengths first so that you can work around your shortcomings.
Here’s how you can identify your trading strengths
Identity #1: Review your Forex trading journals
If you read what I publish regularly, you’d know that I often emphasize the importance of keeping a detailed Forex trading journal.
So put them to good use!
Review your trading logs and pinpoint the instances where you think you performed well.
Identify your top ten most profitable trades and take note of the following:
Which pairs did you trade?
Did you stick to your trading plan?
Did you base them solely on technical, fundamentals, or were they a combination of both?
How long did you hold on to your trades?
Aside from asking yourself these questions, identify other common factors that helped you win those trades.
Identity #2: List down your strengths as a trader
I know that it can be a daunting task, but renowned trading psychologist Brett Steenbarger came up with the idea how you can go about it.
Citing the VIA Survey which was created by the VIA Institute on Character to help people assess their strengths, you need to identify your top five from the list below:
creativity, curiosity, open-mindedness, love of learning, wisdom, bravery, persistence, integrity, vitality, love, kindness, social intelligence, fairness, leadership, forgiveness, modesty, prudence, self-control, appreciation of beauty, gratitude, optimism, humor, spirituality…
Now what I want you to do is think of specific ways how you could apply them in your daily forex trading approach.
For example, I ranked the love of learning as my biggest strength.
I think I can apply this more by studying different systems and by reading more books on Forex trading.
Identity #3: Ask for other people’s opinions
Although self-reflection is helpful, we may overlook a few traits that other people can easily identify in us.
So take the time to ask for outside opinion.
Ask your colleagues, trading mentor or coach, and friends what traits you have which they think make you a good trader.
Compile their input and compare them to your own list.
You might be surprised to see how other people perceive you.
Just like identifying your weaknesses, it’s equally important to know what you’re good at, regardless of whether you’re on a losing streak or looking to raise your game.
Unleash your potential using these three identity strengths
Don’t get me wrong. The point of this 3 step process is not to ignore the importance of being able to identify your weaknesses.
I just think that identifying your strengths is as important in realizing your full potential as a successful Forex trader.
Remember, you need to identify common factors that helped you win your trades by reviewing your Forex trading journals.
You then need to list your top five possible strengths from the list that I gave you.
And lastly ask for other people’s opinions what traits they think make you a good trader. Compare them to your own top five list and conclude.
Here’s to profitable Forex trading.
Analyst, Noah’s FX Waves