One of the popular questions I’ve been getting lately is, “Ragh, are there levels on the chart I can buy?”
So I want to explore that question with you, Gang. Because right now is a really unique opportunity for Futures and Forex. It’s really the best time to be trading in these markets right now, as opposed to others.
Let’s talk about ‘why’ this is important. Whether or not it’s just a technical exercise or if you’re actually interested in looking for buys, read along…
STEP ONE: Where Can We Buy at the Bottom?
Now for this question, I don’t mean buying in the sense of we’re at the bottom and there’s a V-shaped recovery on the way.
We’re talking about it from the perspective of ‘are there levels at the bottom of the range that I can buy?’ And thinking of it this way is important for several reasons. One, if we’re down near support, open shorts should be thinking about taking profit. Two, as traders, especially in the context of the chop that we’ve seen lately in the market with the overall downtrend, there might be some back-and-forth. Some traders may want to take advantage of movement to the upside.
And if you’re a trader who identifies with either of those sentiments, you’ll want to take part in this ‘technical exercise’ too.
Well I’ve found, even for myself with decades under my belt, that you need to look at the other side of the coin every now and then. (You’ll get what I mean with this analogy soon enough, Gang.)
STEP TWO: Seek Out Others When Your Analysis Seems All The Same
When I get so bearish, I actually try to seek out bullish commentary from other well-known sources to balance out my approach. That way I’m making sure that I’m not just hearing my own analysis bouncing around and echoing in my head. So I search for reasons why other traders might be near-term bullish.
So when I ran this technical exercise at the end of last week, where did I find bullish sentiment, Gang?
There was a pretty clear range to the downside, where it looked like shorts should look to take profits in the Nasdaq, S&P, and others like that. Obviously, whether or not they did or didn’t doesn’t really apply anymore given that it’s past…
But an important thing about trading is using your knowledge to backtest strategies, look back on past trades, and other exercises like that to help you grow as a trader — so that’s what led us to this exercise.
Now when I was looking at what this market could look like on Monday, I stated that I wouldn’t have been surprised if we moved higher…
STEP THREE: A Catalyst
Because it would’ve been a great outcome for bulls who went into the market long, but more importantly, even though I wasn’t long, this movement could’ve set up another short opportunity for me to trade. My analysis also indicated we’d move than likely see a move higher.
Which brings me to my point about looking for other credible trading sources, and why you can be happy for people who are trading opposite of you. Many times the setups that work out for them, in turn set up something else for you.
You can be on the opposite side of near-term momentum or short-term consensus and be grateful for that short-term consensus because that’s sometimes the trigger for what the next move might be, right Gang?
So going forward when you’re looking for a setup (like when to go bullish), first look for the catalyst.
What do I mean by a ‘catalyst’?
A catalyst is NOT the same as the macro or fundamentals that are driving a particular currency. I’m looking for the psychological trigger that for instance, will carry crude higher — that’s the catalyst. It’s not just the technical setup, or a certain price level, or a specific signal from a tool. Because right now the news is psychologically driving prices up and then fading when technical criteria are met.
Identifying one or two catalysts will help you identify your trade setups immensely.