The biggest reason why day traders fail is usually due to the lack of a consistent and profitable strategy they can stick to over time. To make a profit using a trading strategy, it's crucial to know how to identify trends on a price chart.
By the end of this article, you will have a complete understanding of this effective trading strategy. The only way to be successful in implementing this strategy is by mastering how to recognize a trending market.
As you can see on the Aussie Canada five-minute chart in this example, this trade ended with a 2.4 to one reward-to-risk ratio, earning thousands of dollars in a short time. Identifying the major swing levels on a chart is essential. These include the initial starting point, the new structure high, the pullback, and the pulling back levels.
For us to know that the market's pullback levels are at the bottom, we need to look for the market to break into new highs. If the market doesn't break through the lowest low of the pullback, then we cannot consider the market to still be in an uptrend.
An impulsive move must break our previous major swing level to identify the next drawing point:
Formula: Previous Major Swing Level + Break = Next Drawing Point
Example: Draw a line at the break of the previous major swing level to determine the next drawing point.
We should wait for a break of the level before finding the next swing level. After the market pulls back, we can continue searching for major swing levels:
Formula: Break of Previous Level + Market Pullback = Next Major Swing Level
Example: Find the next swing level after the market breaks the previous level and pulls back.
The Australian dollar is slightly uptrending but with choppiness in between:
Quote: "This is the reality of markets. It's not what you see on YouTube when people are cherry-picking stuff."
It is essential to show examples that resemble normal market situations that are choppy for traders:
Quote: "What helps traders more, in my experience, is showing examples that look like normal market situations that are choppy like this."
We only know the market remains in an uptrend unless broken below the level of support:
Formula: Break Below Support = End of Uptrend
Example: The market is in an uptrend unless it breaks below the support level.
The bottom of our pullback would be the bottom of our major swing low:
Formula: Bottom of Pullback = Bottom of Major Swing Low
Example: Identify the bottom of the pullback to determine the bottom of the major swing low.
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