By Mike Lee
Before we can construct a plan, we must first accept the unavoidable fact that no trading plan will ever function perfectly. No matter how hard we try, we must deal with the unwanted situations in the investment business.
Markets will display different ‘flavors’ or situations at different times based on different fundamentals, technical, and a slew of other considerations (such as impending news events). It’s critical to remember this while we develop our strategy. Because we, as human beings, naturally aim for perfection and precision.
Unfortunately, for traders, it can be a deadly mistake because pursuing perfection is impossible and also be costly. The secret of developing a plan is to focus on the ‘net results.’
Furthermore, focusing our tactics on the market conditions as they were intended can assist traders in delivering the best’ net’ outcomes.
So, before starting designing the plan, we must first answer a critical question: For what market scenario do we want to develop this strategy? Without having a proper answer to this question, we shouldn’t advance further.
How Do You Choose a Condition?
Ranges, trends and breakouts are the three types of market circumstances. Each has its own optimum moment for buying or selling.
Ranging Market
In ranging conditions, prices advance through a channel. Prices will maintain the borders of support and resistance during range market conditions. Therefore, traders in such conditions follow the ancient guide of “buying low, selling high.” But remember, such actions must be backed by technical and fundamental analysis.
Ranges can appear when traders lack enough data to propel prices higher the resistance or down below support. In short, if the price of a certain asset remains confined within a particular zone, we should consider it as a ranging market. As a professional CFD trader, if you intend to trade the ranging market, make sure you go in favor of the last prevailing trend.
Breakout
The price might continue to run for a long time after breaking through support or resistance. Trading breakouts are a strategy for entering trades in anticipation of support-or-resistance breaks. When trading breakouts occur, entry orders are frequently used.
It’s vital to remember while planning breakouts that no one knows when, or how support or resistance will be broken. As a result, it’s hard to predict how a breakout might occur before it emerges.
How do we know that if support or resistance has been broken, the price will continue to move in the same direction? We don’t actually have any idea.
This adds a remarkable amount of uncertainty to the trade, but traders have a plethora of tools at their disposal to try to mitigate this risk.
The point of hope is that if a person succeeds in a breakout trend, the price can continue for a long time, and allow the trader to earn a large number of pips.
When it comes to breakouts, traders are more likely to be wrong than right. That’s why they should be extra cautious when dealing with breakouts.
Trends
Trends can be traders’ a best friend, providing a “bias” to look to trade in a specific currency pair. In order to see a trend on the chart, trend traders typically wait for a support level or resistance level to be broken.
Trend traders then adopt the same adage as range traders, namely, “buy at low, sell at high,” with the difference being the trend dealer is using the “bias” of the current trend.
Lower lows/highs are emphasized in downtrends, whereas higher lows/highs are emphasized in uptrends.
A trend can be quantified in a variety of ways. Many traders choose to use indicators like moving averages to recognize these patterns. Others may choose to ignore the signs entirely instead of depending on the price action to grade different trends.
So, these are the conditions that a trader must consider before devising a strategy. It will help them to formulate an effective one. When the time comes, it will make all the difference.
