(by Sacha Tarkovsky)
If you have been following our articles you will know we love the stochastic indicator it’s simply the best timing indicator you can use and here’s the proof:
We showed you 5 trades and got 4 profits and 1 break even and have 3 open trades all in profit- So why is momentum so important let’s find out.
Trade with The Trend
One of the biggest mistakes you can make in trading is to trade against price momentum.
A Fatal Mistake
Many traders make the fatal mistake of simply buying near support and selling near resistance, even when price momentum is moving strongly to these levels.
However if you trade and “hope” these levels hold then you will be trading against momentum and increase your chances of losing.
Traders do this because they want to sell market tops and buy market bottoms.
This is not a good way to trade!
You are better off waiting for momentum to turn before trading this means that prices have tested the level and then you can get in with the odds on your side.
The Ultimate Timing Indicator For Swing Trades
The best momentum indicator in our view is the stochastic (explained more filly in our other articles) as it measures short term price momentum.
You can see it on many free sites such as futuresource.com.
It’s a visual indicator and you don’t actually need to know the equation behind it to use it – Same as you don’t need to know how an internal combustion engine works to drive a car.
If you look at the Dollar Yen trade we gave a few days ago, you will see both stochastic lines were pointing down as prices zeroed in on support.
To time an entry long and indicate support will hold you look for the following:
A cross of both lines to the upside.
This is referred to as bullish divergence, shows short term price momentum is reversing and the bulls are taking control above support.
The exact opposite applies when you are swing trading into resistance.
Don’t Predict Get Confirmation
By waiting for the crossover, you don’t buy the bottom, but you get in when the odds of an up move are higher and this will mean more profitable trading.
All three trades we picked as live examples are in profit and you can spot similar trade set ups.
Watch stochastic momentum above support or below resistance and watch for bearish or bullish divergence crossovers to time your trades.
If you do, you will get more high odds trades and take the hope out of your trading:
You will trade on the facts and this will increase your odds of success.
Try this method in your swing trading and see how effective it can be.
FREE ESSENTIAL TRADER PDF'S AND MUCH MORE
On all aspects of becoming a profitable trader including features, downloads and some great FREE Trading PDF's visit our website at http://www.net-planet.org/index.html
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