A few weeks ago I lamented the desire of traders to make their lives much harder than than they should be. To illustrate this I posted the chart below –
It highlights the power of drawing straight lines to define zones of congestion and then going long or short based on the direction of the breakout. What was interesting is I got inundated by charts from traders with all sorts of crap all over them. A few even proclaimed that a breakout of resistance was a signal to go short based on whatever squiggly line they were using. You may find that hard to believe but you would be surprised at how often traders have told me that they are short an instrument that is in a raging uptrend.
Consider the image below which I snipped from IG Markets – you can decide for yourself what direction you would want to be facing.
This is the current situation with Cocoa.
There is a lazy 15R sitting in the trade and all I had to do was draw two straight lines and do the hardest thing a trader can do – wait.
Trading is a fascinating profession and it is one with the simplest fo rules – in fact, I only know three things about trading.
- If it is trending up over the time frame you are trading – go long.
- If it is trending down over the time frame you are trading – go short.
- Don’t bet the farm.
Unfortunately, most get these rules back to front.
