KOG - Identify your zones!Identifying the correct zones and regions for your trading:
Many of our followers will know that not only do we have Excalibur targets, we give the exact levels and price points that we want the price to achieve. What we also do, is show you the boxes (zones) on the chart for the wider community, to help steer you in the right direction. Price action plays a huge part in this and it’s something all traders should learn, however, zones are effective, not only in trading the right way, but knowing when you’re in the wrong way!
Price is a series of test on levels. It creates trends or ranges but will always do the same thing. Once we understand this, we know it's not the market that is the problem, it’s us, the trader. If we learn it's behaviour all we then need to do is make sure our money and risk management is up to scratch. It's never 100%, but if we test a level, it breaks, structure suggests it's going against us, don't hold on to hope, or add more in the direction you intended. Cut the damn thing like it's a poison to your account.
You need to treat this as a business, no matter what your account size. Every day there are large institutions who want to take your money away from you, you’re in this market to take from them and give them as little as possible. You should have a risk model in place, am I going to risk a certain percentage of my account? Am I going to stick to a stop loss of a certain number of pips? Am I going to have a risk reward that makes sense? Your stop loss and risk management plan are your best friend in this market, it allows you to limit the losses and live to trade another day.
The market will give you clues as to what it’s going to do, breaks, tests, and retests. We can plan the move before it happens this way, we know if it breaks a level, that level turns into support or resistance then it’s going to go and test the next level.
Remember:
The market will always give you a chance to get out of a trade if it’s going against you, as traders our ego's take over and we hold on to hope. If you're in a whipsaw and choppy market and in the wrong direction, your safest option, even if it ends up going your way in the end is to get out of it and limit your losses. You can always find another entry point for a better risk reward.
Ego is one of the biggest killers of accounts and works both ways. Hold on to a failing plan it will humble you. Show the market you’re too confident, it will humble you! Know when to trade, know when not to trade, know when you’re in the wrong way and accept defeat!
The example on the chart is showing you a simple 4H timeframe, with the zones in place. We know price will play zones and levels, it has to test these almost to see if it likes that price point or not. It will either break or reject the level.
If it breaks, you will usually see a forceful break, then the retest of the level which turns previous support/resistance into new support/resistance, or it will reject, in which case you will usually find the reversal. When trading with a bias or a target in mind, the market will use these zones (levels) to work within and as traders, we should know that if a level is hit, that’s our target reached, or, if it’s broken, that’s sign that we should either start thinking about managing the trade or getting out of it. In order to plot the levels, you will need to zoom out of the chart. Similar to the ‘Simple trading strategy’ we have shared in the past, you will use the peaks and troughs dragged across to present day, to identify your zones. Why? You may ask! Because the market is historical, the levels are the levels, and “levels don’t lie”.
Concern:
What many traders do, and it’s not their fault, it’s just a lack of education and trading experience, is hold on to trades with huge drawdown. They will place a trade in one direction, price goes against them, instead of implementing a stop loss, they will convince themselves the market will come back to this price, so instead “I’ll turn that into a swing trade”. This is the wrong way to think about the market, especially if you’re an intra-day trader, which most of us are. Shown on the chart, you can see, the level breaks, the level is retested, the retest in confirmed and the price moves away from the level. Once, the retest if confirmed, that’s the market telling you the trader, listen, you’re potentially in the wrong way, and we’re going to test another level higher/lower, so prepare yourself.
This is a really simple way, together with a risk model in place, to limit losses and maintain a healthy account.
Please try it and let us know!
As always, trade safe.
KOG
