Before you start on any type of trading, you need to be clear about when you should enter the trade, and most importantly, when you should exit. This will form a key component of your strategy, and help you make decisions that will finally result in some profit. This comes down to logic, with many traders choosing to analyze different types of charts in order to determine these points with ease. Furthermore, they use the to predict what could happen in the market so that they are better able to make guided decisions.
What to Look for on the Chart
When you have a chart for trading in front of you, you need to know what you should look for. First, identify the bottom of the chart as this is an indication of the best points for entry. Then there are also the ceilings on the chart and these reveal the best places that you can exit from a particular stock. The reason that you should analyze the chart is to ensure that you understand what happened in the past. This is because stocks tend to follow patterns and you can then get an idea of how the stock movement is going to be.
Choosing to Go Long
Strategies vary depending on whether you choose to go long or short, though as you are building up on your skill, it would be better for you to go long. Here you need to pay attention to the resistance level, and choose to enter the market when your stock goes above this level. The best way that you can identify the timing is right is by looking at the strength of the volume around this point. To set your stop, you need to start with an arbitrary amount as it is easy to calculate and lets you know the maximum loss that you are willing to take. Furthermore, you may find that you need to adjust your risk level as you go on.
After you have purchased a stock, you should be prepared for the stock to experience some movement, including a downward movement for some period of time. That is why it is better to go long, as you give the market the time it needs to stabilize. A good time for you to make your exit is when the market has appreciated by around 20%. This helps you benefit from an upswing and make a profit. Resist temptation and greed by trying to hold on to your position.
Making Firm Decisions
As you consider the point of entry and exit, you need to choose from one of two perspectives. The first is whether you will base your information on the price level, or whether you will choose to focus on the technical information instead. In this case, the decision to execute a trade will be based on whether there is any technical information or a change in price instead.
Before you choose which one would be the best option for you, you need to consider what your tolerance for risk is. If you have high risk tolerance, then the technical indicators would be a good option for you. With a low risk tolerance, it would be better for you to base your trading on price. Technical indicators tend to be challenging to find the appropriate exit points.
In trading, getting a profit and a good return comes down to timing when you will carry out your trade. Use the information here to help you establish the right moments for you, and your preferred method of trading.