ToTheTick Support and Resistance Blog

Fellow ToTheTick’ers,

I hope this new year finds you well!  As part of our 2012 plan, we will be amping up our education efforts, as many of you have requested.  As most of you know, our #1 goal is to help every member improve their trading.  While every trader is different, our common goal is to trade as proficiently as possible in order to make the type of income we desire.

With that in mind, the most common question I get from other traders is this:  ”How do I trade the zones profitably?”  While no one can guarantee profitability(and run the other way quickly if someone does), I have basic rules for you to follow when trading the zones and TurningPoint which should increase your success.

Rule #1:  Be patient, and wait for the trade to come to you.  Don’t force a trade!  Especially fight the urge to find another trade right after a losing trade.  It is so easy to want “revenge” on the market, and get our losses back quickly, so we take another trade quickly, after a loss, without the proper set up.  Then we typically end up with two losers in a row, and contemplate throwing our monitor out the window.  :) Personally I ignore all setups unless they are in one of our zones, no matter how good the set up looks.   TurningPoint signals are very good entry signals when combined with the zones.  Ideally wait for both to occur.

Rule #2: Favor the top half of the zone for a short entry, bottom half for a long entry.  Many times price will move into our zones, consolidate, then get one more push (flushing a lot of people out) before reversing.  In the case of a long entry, look to enter in the bottom half of the zone, or even up to 4-6 ticks below it.

Rule #3: Look for “normal” market behavior. I put this in quotes because normal is relative.  The market can do anything it wants, anytime it wants.  But as you’ve seen, a typical day consists of rotations up and down.  When that is occurring on normal volume, you should have plenty of excellent trading opportunities available to you.  Conversely, if price is trending, especially on higher than normal volume, be wary of entering opposite of the trend, even if you get consolidation in one of our zones, TurningPoint signals, etc.

Rule #4:  Keep your losers small, and keep your emotions out of it.  I know this can be difficult. But in my opinion this is the #1 most important skill to develop and execute on each day.  No one wants to take a loss on a trade.  But you MUST look at losses as a cost of doing business, not as a “losing” or “failed” trade.  As long as you followed your trading plan(which will be covered in a subsequent post), and you executed the trade according to that plan, you should be just fine with that loss, knowing that you are trading a system that ultimately has returned more than it has lost.  But if you have a big stop, or move it when price goes against you, hoping you can eventually get out of the trade at breakeven, I can guarantee you that eventually you will suffer a large loss that will wipe out much of your account.  Yes, you will escape many losers doing this.  But it will only take one loss to crush you.  Don’t do it.  Ever.

Take a look at the Euro from today’s action.  Perfect example of why I recommend Rule #2.