17 May 2008

How I do daily market assessment?

I was very busy recently and as a result I was not writing and updating. I will be blogging the recent happening in www.phfamily.blogspot.com. Pray along with me.

1) What is the general trend?
Fundamental
The need for this answer will help you decide whether it is good to play long or short.
The answer can be found in reading news from www.forexfactory.com and http://finance.yahoo.com/

forexfactory shows you the results of the news as well as what are the news that are coming up.
yahoo shows you how the equity market, commodity market, the general news that make headline.

It will take you sometime to find co-relationship between the news and the trend. Give it a try and journal down each day on your prediction and write down why do you predict that direction. Over time, as you go through your journal, you may observe those prediction that was made correctly and what are the news and results that made you say so. Soon, I will say that by experience, you will attain what I called 'trader instinct'.

Technical
The general trend can also be predicted based on technical charts.

I used both the daily chart and the 1-hour chart, coupled with WMA5, EMA21, EMA55, EMA100, EMA200, CCI.

CCI show you the continuous trend and it is for you to predict whether the trend will continue and be reverse. This prediction combines with the gradient of the CCI, the pass and current level of the CCI.

WMA5 and the EMAs from daily chart gives support and resistance level. Somtimes Fibonacci retracement is very useful.
For example, WMA5 has been going up for the last few days and is nearing EMA200. My prediction is that there will be a resistance at EMA200 and therefore the trend of going up may be halt and potentially a reversal

2. Where to enter trade?
After your expectation of the trend, there are four possible outcome:
Long breakout
Long reversal
Short breakout
Short reversal

Breakout means that after that support or resistance level, the price will strongly continue to go in that direction.

Reversal means that after hitting the support or resistance level, the price will rebound and reverse in direction.

I use the EMAs and Fibonacci retracment (somtimes with some Eillot Wave theory) to help me decide where can I enter my trade. You will need to understand some Psychology of Trade to observe how the WMA5 behave with the EMAs.

Again journal your decisions - why you enter the trade at that level..

I use both daily chart, but mainly the 1-hour chart to help me place my trade.

3. Where to exit trade?
Again the understanding in Psychology of Trade and your prediction in (1) and (2) will allow you to place your Take Profit (or exiting the trade).

But BUT BUT the method I play does not put Stop Loss. I use a very strict Money Management.

For the moment, place only long trade with no stop loss AND the total margin committed in all your combine open transactions be less than 20% of your trading capital.

4. Journal
Journal your trade - why you enter the trade with the above three reasons.

Happy trading - it should not take you more than half an hour a day.