Trading Tactics

When it comes to entering the position, there are a number of ways we have looked at in previous modules, and here’s a summary of the main tactics.

The Breakout

When the price breaks out from an established pattern, you may consider that a new trend is starting. The question is at what point you take the trade, and there is no one correct answer. You can take it early in anticipation of the breakout, but with a higher risk that it may not happen. If you place the order after the breakout has just occurred, then you will pay a higher price but are surer that the trend is starting.

Trendlines

If you have an established trend, you can choose to enter the position when the price is on the trend line and you’re expecting a reversal and continuation of the trend. Another use of the trend line is to watch for a break when the line fails, and this is often a good timing strategy.

Support and Resistance

Again you can adopt similar tactics with support and resistance, looking for a break through established levels. If the price goes through a resistance then you can establish a new long position, setting your stop loss just below the resistance which should now become a support.

Retracements

In an established trend, we know that retracements can be 33% to 67% of the previous move. Given that knowledge, you can watch the charts and indicators for signs that a continuation of the trend is about to happen, and get in early on the move.

Gaps

Even gaps can provide information to allow a good entry. If the price retraces to a runaway gap, you may expect that the gap will give support and that the trend will resume. In this case, you would buy if the price dipped to the gap. The overall concept is to buy when the price is near support, but to watch carefully for any violation of the support so that you can exit a losing trade.

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