Identify Opportunities, Trading Plan For Uncertain Market
In this article:
- Review and update your trading plan
- Learn to track price support and resistance
- Target profits within set time frames
How do the “Voodoo” masters work a wild market to target profit potential?
This market has proven uncertain, unpredictable, and, unfortunately, unprofitable for many traders caught chasing an evolving trading environment.
Sometimes traders need a little “magic” to refocus, relearn, and rediscover market opportunities and a strong trading plan.
Learning this trading system identifies opportunities to navigate the market no matter how it twists and turns.
(Check out the free video, above, for insight into trading this uncertain market.)
Create a trading plan for this evolving market
Traders today understand that this volatile, downtrending market is not the classic “buy the dip” opportunity. There is no certainty to how far this stock market freefall will go before settling into an uptrend.
Calling this market “bearish” and not a crash may yet prove to be the understatement of the year.
This week started much like last week ended – the market was bleeding across the board.
The Dow closed at 32,245.70 points to fall 1.99% (dropping 653.67 points on the day). The Nasdaq dropped to 11,587.78 points for another significant tumble of 4.59% while the S&P 500 crumbled 3.44% to 3,981.49 points.
How can traders get ahead of volatility and put together a strategy that can still identify and track profit opportunities?
Simpler Trading offers a variety of “learn and trade” methods to fit market conditions, and each one has similar and specialty elements to guide traders.
Today we’re going to share what some consider a less traditional method that traders have found fits this “non-traditional” market environment. This is the Voodoo that we do when the market is all over the place.
Disciplined trading plan is a must
The first question traders must ask – no matter experience level – is the most important, “What is my trading plan?”
So many traders must admit that they either don’t have a trading plan or the one written down in an old notebook is years out of date.
Successful traders create and update a disciplined trading plan.
This is a very personal document designed for reflection and planning solid goals (and the rules to get to those goals). This is not a one-time or static document. A winning trading plan is constantly updated to fit personal circumstances and align with market conditions.
When building a trading plan, ask these questions:
- Why am I trading?
- What is my style?
- What are my goals?
- What markets will I trade?
- What time frames will I trade?
Once you start asking these questions, you’ll discover that many of the answers blend together to develop your disciplined trading plan.
For example, the “why” for most traders is to make money and improve their financial prospects. You may want to make weekly income or boost long-term retirement goals. This may then lead to a trading style that focuses on fast “in and out” trades for weekly profits or holding longer term options to support a retirement plan.
This then leads to discovering which markets might best fit your trading style and goals.
Anytime there is a roadblock to developing a trading plan, step back and review the “why.”
Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading and a resident Voodoo Lines® master, regularly updates this essential part of his trading plan so that he can focus on what the market presents. Here are Henry’s essential aspects of his “why:”
- To generate long-term wealth
- To gain technical competence in the market
- To have a better understanding of how financial markets work
- To create a consistent source of income through trading.
Craft a personalized trading plan that helps your focus and determination when trading.
Develop strategies for market conditions
The market constantly changes and traders need to have foundational strategies in place that allow for trading in fluid market conditions.
Essential to any trading strategy is defining risk.
Traders should always be prepared to lose any capital at risk in the markets. This risk should be calculated before entering any position.
A rule of thumb among Simpler’s traders is to avoid risking more than 5% of the trading account value on any trade. Keeping this at 2% is an even more cautious risk management level.
Consider looking at a trading strategy that can target specific areas of the market.
Every trader wants a precise trading method that can target a perfect entry and exit for a trade. Voodoo Lines® chart indicator helps traders “map out” the market with a predictive effectiveness that can be a little spooky considering its precision.
But this combination of a charting tool and trading strategy isn’t smoke and mirrors. Voodoo Lines® was developed by David Starr, Vice President of Quantitative Analysis at Simpler Trading, based on his analytical application of the Elliott Wave formula.
This system focuses on uncovering hidden levels of potential support and resistance that many traders miss. The key is revealing price action reacting at the Voodoo Lines® (support or resistance levels).
The uncanny accuracy of this objective charting tool is trusted by Simpler’s traders because it only uses “proven” Elliott Wave counts constructed from up to 30 years of historical market data.
An important aspect of trading is that if a tool or strategy doesn’t fit your style or goals, simply search for what works for you.
Simpler’s traders often combine multiple chart indicators and strategies that fit their trading plan. Part of the trading journey is learning and testing different methods.
When defining a personalized trading strategy, try not to attempt learning multiple methods all at once. Focus on learning one method, testing how it works, and then deciding if you need to stick with it or continue searching.
And remember to maintain the risk levels mentioned above, no matter how magical a trading strategy may appear at first glance.
Learn to define support and resistance levels
An essential element of Voodoo Lines® – and any strong trading strategy – is understanding support and resistance levels.
How do these technical analysis signals fit into any trading efforts?
Consider support and resistance as “stall” points on a stock chart that react against price as it moves up or down.
If price is moving up, resistance levels can be charted to show where the price might stop rising. If price is headed down, support levels can be identified to show where price might stop falling. Each can be used to help determine when to enter or exit a trade, or how long to hold before these barriers negatively affect an active trade setup.
New traders will learn quickly (and experienced traders know to keep learning) that identifying support and resistance is more complicated than simply marking a point on a chart. Both depend on the volume of traders looking to buy or sell an asset, and this positive or negative pressure constantly changes.
Market sentiment, or trader psychology, can also change quickly and affect these levels. This is an important element in the current market where news and fear appear to drive traders’ interests more than technical analysis. (The Volatility Index, or VIX, spiked to above 34 on Monday.)
Simplified definitions of support and resistance may not help traders trying to conquer their goals in trading. Chart indicators, like Voodoo Lines®, are designed to gather more data and provide more targeted potential of where support and resistance levels should be set on stock charts.
Determine how to use time frames for trading
Traders at all levels should realize the importance of deciding trading style which in turn helps determine how to use time frames.
Will you focus on swing trading or day trading?
Day trading lives up to its name, i.e. this style focuses on opening and closing trades in the same day, typically in minutes or hours. Like most trading styles among Simpler’s traders, day trading leans into technical analysis.
Day traders tend to target moderate profits on trades, making multiple trades in a shorter time period, and managing risk by limiting loss potential. Still, day trading is considered a riskier style of trading.
Swing trading focuses on trades that extend for days or even weeks. This allows traders to research the setup, calculate risk, and enter the trade with no rush. Monitoring swing trades doesn’t require traders to constantly monitor their online computer trading platform.
As swing trades develop over time, traders can determine if the trade is working for or against them. This is arguably a “less pressured” style of trading where traders don’t have to wait for max profit (some of Simpler’s traders take profits at 50-75% of goals and move on) or hold a trade past the point where it points to a loss.
Swing trading is often suited for traders who want more control of managing risk.
For day trading and swing trading, Simpler’s traders encourage others to learn which risk and “pressure” level fits trading goals. This helps determine style in the short and long term.
Day trading and swing trading both depend on learning the advantages of time frames.
Time frames on charts can cover minutes, hours, or days.
Day trading tends to focus on charts of minutes – 5-minute, 15-minute, 65-minute, 130-minute, etc. – or hours – which can extend from one hour or more.
Time frames are used differently within varying trading strategies, and traders would benefit from learning how time and strategy work together.
Find the profit target that fits your risk level
Finding the profit target for a trade is what it appears to be – how much profit is the goal of the trade?
Profit target can be defined by a dollar amount or a percentage of gain.
Dollar amount is simply how much money you want to earn on a trade, i.e. $50, $500, or $5,000. How much profit can be made depends on the amount of capital at risk. A trade risking $100 is not likely to result in a $5,000 profit while risking $5,000 for a potential $100 profit might not be the best way to manage risk on capital.
While targeting a percentage of profits works with swing or day trading, day traders tend to focus on this percentage of return.
Multiple day trades focusing on percentage of gains can ultimately add up to a larger amount of profit. Targeting trades in seconds/minutes/hours – while managing risk accordingly – in this market environment is another tool in the trading toolbox that works during volatility.
Ultimately personal income goals from trading can help determine whether a trader wants to focus on profit target by a dollar amount or a percentage of gain.
Join other traders ready to get started
All traders must determine how they want to trade and what tools they will use to meet trading goals.
Traders in the Simpler Trading community have discovered the value in Voodoo Lines® and are learning from the masters of this tool and strategy.
Are you ready to start trading with the Voodoo masters? Take the time now to review your trading plan and consider getting started today.