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posted on 02 December 2016

Anticipating The Trend Change Makes For The Lowest Risk

by Gabe Velazquez, Online Trading Academy

Online Trading Academy Article of the Week

One of the best ways I know of to trade with lowest risk and highest probability is to anticipate when price will change direction. To people that have knowledge of the technical aspects of the market, telling them that it’s possible to pick a top or bottom in the market is almost heretical. The notion of trend change flies in the face of conventional technical analysis as something that’s never done, or even attempted. They will tell you it’s a fool’s game.

Wall Street has also conditioned the investing public to never try to time the market. This is due to the fact that most brokers generate fees based upon their client’s money always being invested in the market. So, it makes sense that that they would promote this idea that market timing is futile, and therefore, should never be practiced.

At Online Trading Academy, we teach students to anticipate where prices will likely turn by using our core strategy of supply and demand. So, in essence, yes, we are teaching folks how to pick tops and bottoms, and we do that (buy lows and sell highs) quite regularly. Now, there are rules and specific sets of criteria that have to be in place for that to work, and we are obviously not going to be right all the time. The beauty of this strategy is that even when we’re wrong, we only lose very little and often times have a lot to gain.

Not all markets will fit the criteria that would allow us to attempt to time the turn. For example, our strategy would not allow us to short a strong market at or near all-time highs as has been the case with the equities futures contracts lately. That’s because any futures contract at an all-time high would preclude us from specifically delineating risk and reward. Whereas, if there were clear evidence of prior selling (a supply zone), we could be very specific in our risk-to-reward parameters. Now, once new selling emerges, thus forming fresh new supply levels, we could then aggressively begin to short any other futures contract at or near an all-time high.

An example of timing the turning points came in an Extended Learning Track (XLT) - Futures class I conducted on Election day. The caption below is of the Japanese Yen Futures contracts as discussed in the XLT futures trading and analysis class. As I was conducting the session, a student asked where the Japanese Yen had a demand level where he could buy with low risk. Note that the level we highlighted as a demand area (buy zone) was identified well in advance of prices reaching this level, as we expected prices to trade into this area and subsequently turn higher. In other words, we were looking to pick the bottom in this market.

How to get in at the beginning of a trend change.

As we see from the lower chart. The trade worked out well for those XLT students that decided to take the risk.

A strategy to identify trend change.

This trade worked because many of the “odds enhancers" that we teach in the XLT happened to be in place on this particular trade. With that said, we can have every odd in our favor and still have the level penetrated. So, there are no guarantees.

As the title suggests, anticipating a trend change garners the lowest the risk and larger profit potential in any trade. And isn’t that the essence of successful speculation? Now, once the trend is in place, can we join it? Sure, however, for most traders this means higher risk and lower profit margins.

So, don’t let anyone tell you that timing the market is impossible; it is very possible. With the right strategy and the discipline to execute, it can be done.

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