More Odds on Your Side

I have always had this discussion with my trading students, but lately it has been a fixture in every conversation. Are the odds on your side for the trade? Here is a brief account of a discussion I had with a one-on-one student this past week about putting the odds on his side based on technical analysis.

We were talking about putting the odds on your side for trades and the subject of day trading came up. I told him the same rules apply to smaller time frames as well as larger time frames like daily and weekly charts. Look for areas where the stock may hold and reverse like support and resistance. We looked at the market and found a potential trade idea on Alibaba Group (BABA) on a 5-minute chart.

The stock was heading down to support on the 5-minute chart as seen below. Knowing support has a better chance to keep the stock from moving lower, the sentiment was a potential bullish trade. To confirm a bullish reversal, we looked for a bullish trigger, like a bullish candle closing above the previous candle’s high at that support level, and got it!

Going long stock as that 5-minute candle was closing was a bullish option, and as you can see from the chart below, it worked out perfectly. The stock traded up to previous resistance where profits could have been taken expecting the stock to stall at resistance.

Putting the odds on your side can vastly improve your trading results. Knowing support and resistance have a better chance to hold is just one simple method to consider.

John Kmiecik, Market Taker Mentoring

Trader Education