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Trading Gaps for Daily Profit

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Gap Trading
Trading-Gaps-for-Daily-Profit, stock gap trading strategies that work,

One famous and effective way to trade the market is to use gap trading strategies. However, as it grows ever more popular across traders of all sorts e.g stocks, forex, futures, etc. one has to find an edge whilst using this strategy in order to win the market.

This video will give you insights on how to use a gap trading strategy that will definitely help you tremendously in trading the market.

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Gap Trading

Hey my friend, thank you for watching this video on gap trading for daily profit. This is Barry Burns with Top Dog Trading and let’s jump right into it. So gap trading is one of those classic techniques that everybody learns normally right at the beginning of their trading career, and it’s a very popular way of trading. It’s very appealing in the sense that it looks easy at first glance and it also was one of those things that don’t work as well as it used to, but that’s not surprising because it is so popular. Anytime anything becomes popular, guess what? That’s right about the time it stops working. Everybody knows about it, everybody starts trading it. And guess what? Most people lose money. So once everyone starts doing something, it stops working. You’ve got to have an edge.

By that I mean you can’t be doing the same thing everyone else does. So here’s the classic pattern that people are always looking for. We’ve got one day here, by the way, these are California Times down here and this is a three-minute stock chart. So you’ve got your open way down here and the previous day closed way up there, and the easy way for gap trading is to just say I’m going to trade it back into the close of the previous day. And Japanese candlestick patterns, by the way, they also traded gaps and they call it closing the window. So it’s really nothing new to the Western world. The Japanese were way ahead of us. They said, okay, windows open and now it’s going to close.

Gap Trading Strategies

That’s great. That’s fun when it happens, but it’s not the way it normally happens anymore. Obviously, it still does happen sometimes. Here is an example. Now, let me show you what happens most of the time these days in another example. If you were to say we closed here this day and we opened down here this day and I’m just going to trade the gap close right away, you’d be a sad little puppy because it didn’t close right away. In fact, let’s watch this whole day. See how and when it closes. All right, so you think, okay, I’ll just trade it later in the day. There’s the end of the day and it still didn’t reach the gap close. There’s the line right there. So one of the questions when it comes to technically how to trade this is where do we put the line?

Gap Trading Techniques

So in looking for the gap to close, technically you would say we should do it on the previous day’s close because that is literally closing the gap; closed at one price one day and then it opens at another price other day, and you’re waiting for it to close or get back to the close of the previous day. That’s not the best way to do it. The best way to do it, in my opinion, is to look for the little low there and that’s just a more conservative way to trade it. I’ve seen many times where if you put it at the close or the last bar, it could be a green bar and maybe the close would be up there. And the markets are not perfectly neat because you’ve got millions of people all over the globe trading in 10 different things, time frames, etc.

Intraday Gap Trading Strategies

So don’t expect to get to the exact penny, pip, pixel on your chart that you wanted to get to. Allow for that messiness to be conservative and place it at the lowest low there. Wait for it to come back into that level. Okay, so now that we have established that technique, here’s the other thing that I want to share with you. After the market gaps, quite often what happens is it goes sideways for most of the day. In fact, here’s what would happen, there you go, big move down with our nice gap. And it goes all the way down and, actually, it goes all the way down there in the first three minutes. So from there to there in the first three minutes, what happens the rest of the day? Not a whole lot of anything. It just kinda goes sideways.

That is what normally happens. Now that is the norm. That is what you will see more days than not. And remember trading is about trading probabilities and we never know what’s going to happen. There are no certainties. So we’re trading probabilities and this is the probability scenario and part of the reason logically is because after the market has a big move down, and remember this is not showing any pre or post market data because if you show pre and post-market data, you won’t see the gap. There’s been trading that’s going on overnight there or early in the morning before New York opens and now. So what’s happened is a bunch of people shorted and when the market opens open outcry and most people are looking at their charts, they’re saying I don’t know, I’ve already missed out on that big of a move.

Forex Gap Trading Simple and Profitable

So whatever I want to do, I want to go short now. I mean the dominant direction is down, but I already missed out on all that. So psychologically the masters are saying I’m getting in too late. On the other hand, the sentiment is bearish. So some people are thinking gap and go, some are going to by thinking that the gap is going to close and you’ve got this conflict. So you’ve got people on both sides in the bottom result, is that after gaps quite typically on a daily or an intraday chart, the market really just doesn’t go anywhere. It just kind of goes flat for the rest of the day. It’s not a great trading market for the rest of the day. So here we go and it’s several days down the pike here about three days later and we get another gap.

So from there to there, do we get a gap close if you’re going to trade the gap close and maybe even wait for the peak there to come back down? Nope, sorry. You are not going to get it. The whole day goes by and the gap does not close. So what does happen? Well, just what I said gaps up and now you’ve got conflicting views in, therefore, the market goes sideways for most of the day. It finally does go up. But again it goes up in the afternoon. So if you are going to look for a market move after a gap, usually it’s going to be after lunch. And that’s exactly what this is. This is 1:00, New York time, 10:00, California time. And where does it go? It goes back to this blue line. What’s that Blue Line?

Stock Gap Trading Strategies That Work

Well that Blue Line, if we scroll back, that’s where this gap started. So the gap does close eventually. It took three days for that gap to close. Therefore what I recommend is that you do put these levels on your chart and make them something unique, like a different color. Whatever color you want to mean something to you, but just that you don’t use for anything else. So you might use something that stands out. You’re not going to use it for other support resistance levels. So let’s say you want to use Golden Rod. Okay. And we’re going to make it a little thicker so it really stands out and that whenever I see that line with that thickness, I know, oh wait, that’s where a gap close would occur.

And it is acting almost like a magnet really that yes, the markets are very aware of gaps. The masses are aware of gaps, no question about it. And for that reason, they do tend to have a self-fulfilling prophecy. So I put it on there, but I don’t expect this necessarily going to feel in the first day or even two. In fact, let’s look further. Let’s take that puppy off of there and let’s look at some further examples here. We get another gap here. That’s open and that doesn’t close. There’s your gap from the previous day. Okay, so that one doesn’t close and we do not close that day. Let me just put a line on there. Again, make this clear for you. So there I would put it there. See now this day we closed here, but I wouldn’t put my line there.

Gap Trading Techniques

I’m going to put it down here just to be conservative. Then now look what happens, this is cool. Let me get this all on one chart so you can see. We gapped down this day. We don’t feel that gap that day. Again, notice how the market kind of just goes sideways for most of the day. Then the next day they get fills, but you don’t really have a chance to take the trade for the gap fill because it gapped up into the gap, fill gaps down, and then it gets back up into the gap fill type. Well Great. No opportunity to take that trade unless you are trading overnight. Again, can we get the same dynamic here that I was talking about? A pretty good gap up. Okay. Goes Up. And then what’s it do for the rest of the day? Just kinda goes sideways.

Sorry. Not really anything. Say you need to do. If you didn’t want to do something, it’d be in the afternoon. Take that a little move there. So now this level, it’s not only a gap close, but it is a support level. The market bounces off of it, comes back again as support and bounces back off of it. All right, goes back on up and let’s see. There we go. Get another one. Good fact. We’ve got two more. So let’s look at these real quick. Got a gap up. the market doesn’t really go up much. From there it goes kind of sideways, does not fill the gap next day. Gaps up, it’s a gap and goes up. But again, what most of the day after reaches a tie. It’s just going sideways. The afternoon. You get your movement where it breaks out.

Rubber Band Trade Strategy

All right, well if you liked this video, please understand that it’s free. But if you got value from it, please you have a moral obligation to pay it forward by sharing it with other people. Click that beautiful little share button below. It’s a really pretty nice little button there and you will feel good. You will sleep well tonight. If you click that button knowing you did the right thing, and that’s really the best thing you can do to help encourage me to create more free tutorials for you. Click the thumbs up icon.

And leave a comment below. I love your comments, by the way, they really encourage me as well and I’m giving away one of my favorite trade strategies, it is called the rubber band trade, which has a very high wind loss ratio. Simple trade. I’ll teach it to you in about 26 short minutes. Get my rubber band trade strategy absolutely free by clicking on the image in the top right corner of this video or in the description below the video, and if you’re not watching it on youtube and there’s probably a link below or an opt-in form on the side. Once you do one of those choices, I’ll personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

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Best Technical Indicators For Day Trading

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best technical indicators
Best Technical Indicators For Day Trading using Bollinger Bands and MACD Indicators

There are hundreds of what claim to be the best technical indicators for Day Trading and swing trading. In this post, we’ll be discussing how to use Bollinger Bands and MACD Indicators in combination to help you in trading whether on stocks, futures, ETFs, etc.

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Best Technical Indicators For Day Trading

Indicators for day trading are a dime a dozen, we’ve all seen a million of them. And today I’m going to show you something that by the way also would apply for swing trading and, um, even long term treating frankly, if you put this on a monthly, weekly charts, you could do this for some real long-term trading and even investing, but today we’re going to show it to you on day trading examples and the indicators that we’re going to be using are the MACD and the Bollinger bands. These are some of the best technical indicators for day trading is that we’re going to use them in combination with each other. So it’s going to be an indicator of an indicator. Now, what did Barry mean by an indicator of an indicator? Good question.

So, normally, when we are using Bollinger bands, were using them on the price bars. And that’s fine. I like to do that too. However, what we’ll do today is we’re going to look at MACD and by the way, the MACD settings that I’m using here is the standard 26, 12 and 9, and that’s what these red little Dots are. I put a plot of them as dots just so that I could see them very clearly, they would really stand out over against the lines of the Bollinger bands. Anyway, you can customize that however you want, but we are creating here instead of Bollinger bands of price, we’re creating Bollinger bands of the MACD indicator and the Bollinger bands are set again at the standard setting, which is generally two standard deviations of a 20 period moving average.

Best Combination of Indicators for Day Trading

Okay, so it didn’t really change any of these settings on the indicators, although we can play around that without if you want to as well. We’re creating a Bollinger band of the MACD instead of a Bollinger band of price action. How do we apply that? So here are the kinds of setups that I look for and give you a couple of examples on how to use these best technical indicators. First thing I will say is, since we’re talking about day trading today, and this is a three minute short, by the way, it doesn’t really mean it does matter, but, the first thing I want to tell you is that since we’re day trading early in the morning like this, I find that these signals are not necessarily as reliable. So I don’t take that first impulse move generally but I’m not going to tape because it normally doesn’t follow through.

It’s just sometimes they do, sometimes they don’t, but we’re trading probabilities and they find that most time it doesn’t. Therefore, I’m waiting for the next move. Now, what am I waiting for? I’m waiting for the typical kind of boundary band squeeze pattern where the upper and Bollinger bands squeeze together, right? They come close together just like that. And then the MACD hits the upper or lower level and I’m looking for that to then go long because we’re looking at this as a low volatility on MACD, and then we want it to start expanding and go to a high volatility. If it hits the upper one, we go long, if it hits the lower one, we go short and as you can see, sure enough, nice impulse move there. Got It. Nailed it. Now another thing to look for.

Day Trading Indicators Patterns

That’s the basic signal. First of all, that’s the basic signal. Now, the secondary signal you want to look at is, for example, here, we put in a high and look what happened, high on price, but look at a MACD, it pulls away from the Bollinger bands, right? Stops riding them. I call this riding the Bollinger bands. And then it lets loose of them. So that’s a nice indication of, that’s a high probability high and you get kind of the same thing down here, except we didn’t get an entry into that move, but here you might think maybe I should go along, maybe I should go short, but no, because the MACD doesn’t touch the lower Bollinger band. That is essentially telling us that the market is not making any strong impulse move to the downside and, therefore, not really going to be a great trade.

And again that proved to be very true or could just kind of go sideways after that. Plus we don’t get the Bollinger bands to squeeze there. So let’s move forward here a little bit and again. What happens? We get these same patterns. Bollinger bands squeeze there, right? You gotta wait a little while. So the first time when we get this, you might say, well, but it hits the lower Bollinger band here. Yes, it does, but we don’t want to go short. Why? Because the squeeze is still just starting. So we want to take the trade out of the squeeze, not at the beginning of the squeeze, so we wait for it to get in there and then we for forward to start expanding and what you want to see are the Bollinger band starting to separate to part.

Best Technical Indicators for Day Trading Stocks

So, when the lower goes down, the upper goes up, and then whichever one it hits, that’s the one that we’re looking for and momentum, remember MACD is, essentially, well traditionally it’s called a momentum indicator, but it’s really more of an acceleration or velocity indicator. But yes, we get a nice impulse move there and we are golden. So the type of trade, this actually is a volatility trade, but instead of using the Bollinger bands on price, we’re using it on a momentum indicator and it can sometimes give you different signals. Now, let me show you a couple more examples because I want to keep you out of trouble. It’s very important to learn the details of this. So we got it here. We went long and notice the same pattern, we put in a high. What happens is the MACD pulls away from the Bolinger band.

Then we come back here. Now again, you might say, wait a minute. If the upper Bollinger band, I should go along. No. Why? Well, we already told you because the Bollinger band is squeezing together. The upper and lower bands are moving toward each other, so we don’t want that. Same thing here, they’re really just still kind of going sideways. And then now here it does go up toward the end of the day. In fact, that is the end of the day. We do get a little bit of an up move at the end of the day. One last example for you just to bring home the lesson. So again, beginning of the day, right? That’s this horizontal line is the beginning of the day. Just to be clear, by the way, these are California times down here. So again, we get the impulse move down.

Day Trading Rules

We do hit the lower Bollinger band, one of the best technical indicators. A couple of problems, number one, our rule is that first, impulse move at the beginning of the day, normally not good. Number two, it does touch the lower Bollinger band, but look, we’re not in the squeeze, right? We don’t have the squeeze first, so it’s disqualified on two counts. Now, here we do have the squeeze but we don’t want to take it right away because the squeeze is just starting. So the two Bollinger bands are coming together. We wait until they start parting and we get a little bit of a down move there. Now watch this, it comes back up, does not touch the upper Bollinger band, it comes up, comes back down, and it does make another impulse move down, right? The squeeze happens, look at this. If you could see this, that moves up.

This one moves down, talking about the Bollinger bands. After which, this goes sideways for a little while. Then this is a point here where the Bollinger bands are clearly moving in opposite directions. They’re spreading apart, we got a momentum move, and we’re golden. So sure enough, again, one last thing, just to reiterate, we get a nice divergence there, it’s not really a divergence, but just MACD pulling away from the Bollinger band which means it’s slowing down. And then we wait for a nice candlestick pattern, we wait for resistance seeing that’s what you’re looking for, the confluence of time and price. We’ve got resistance, we got momentum slowing down slightly when resistance is going to hold – when momentum slows down because price tends to go through resistance when it’s moving on strength and it tends to bounce off of resistance when it’s moving up on weakness.

Rubber Band Trade Strategy

So if you liked the video, please understand that it is not free. Well, all right? Literally, it is free, but according to the universe, if you add value from it, then you have a moral obligation to pay it forward by clicking on that beautiful little share button down there below and that is the best thing you can do to share it with other people. It also encourages me to continue creating more videos to share with you. Also, if you’re watching on Youtube, please subscribe. We’re getting a lot more subscribers coming in right now. Very exciting and that motivates me as well, and you’ll be notified by the way, whenever I release a new tutorial that way, give us a thumbs up, leave a comment. I love your comments and we have a special offer right now for youtube subscribers.

I’m giving you one of my favorite trade strategies. It’s called the rubber band trade, has a very high wind loss ratio. I get emails all the time from people thanking me for giving away this trade that we got people making money without paying me anything. So take the trade and trade it on a demo account first and make it prove itself to you. I’ll teach it to you in about 26 short minutes. You can get the rubber pay in trade strategy absolutely free by clicking on the image in the top right corner of this video or in the description below the video. And if you’re not watching a youtube, there’s probably a link somewhere below or in the op-tin form on the side. Once you do one of those actions, I’ll personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

What did you think of this tutorial on Best Technical Indicators For Day Trading? Enter your answer in the COMMENTS section at the bottom of this page.

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FREE GIFT!

Also, I’m giving away one of my favorite trade strategies that works in trading the markets. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with the first video.

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Forex Trading Training Trading Breakout Strategy Patterns

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Breakout Strategy
Forex Trading Breakout Strategy Patterns that works in futures and stocks, too.

Having a breakout strategy using patterns is a great way to win in Forex trading. Then again, one cannot rely solely on them; learning the other trading fundamentals is as important too.

This video will tackle a sound breakout strategy that works in today’s market which will definitely help you tremendously in your Forex trading career (as well as stocks and futures).

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Forex Breakout Strategy

Welcome to this FOREX trading training today, trading breakout strategy patterns, and this is based on, well in top dog trading, we call it the rule of three. I should mention that this will also work with futures and with stocks as well, but today we’re going to show it to you on FOREX, it’s a simple pattern, but it has a very profound psychological, logic behind it. So we look at a level such as this high, and we’re looking basically for a level that really stands out that a lot of people are going to see. This is a daily chart, by the way, therefore they’re going to see a big move appear. Big move down to there and this is important because this is why it works. It’s the mass psychology of it that a lot of people are going to see.

That is a major swing high. Again, especially since it’s on a daily chart and lots of people look at daily charts, you’ve got masses of people seeing that high. Now, where the psychology comes into that is as the market comes back to approach that same level, you’re going to have three types of reactions, but they’re all based around the same issue that people are looking at that last high in saying that’s as high as the market would go. In other words, that’s the most people were willing to pay for this particular market. Now that we’re a few months out into the future here, the market remembers. It has a memory as people say. This is probably the best illustration of the market having a memory is people looking at that and saying back then we couldn’t get enough people to buy at a higher price.

Forex Daily Breakout Strategy

Think of it like I’m going to buy a car. And the car lot has 50, they have a particular model and they want to know they want to move those cars, of course. But nobody’s willing to pay more than what they’re asking. So everybody’s trying to get a deal or nobody’s just interested at that price at all, zero. What did they have to do? All the car dealerships going to lower the price, supply and demand, basic economics that people are watching that level and they’re going to say, ‘I wonder what the other people in the market are going to do when we get back to that price, we’ll send them that change’. Will there be people willing to pay more? But the doubt is there. That’s the key, doubt, hesitation, lack of confidence, lack of certainty in the masses.

Therefore, it is most likely to fail. That is the one that the first attempt. Here’s the point, so this is the first time that we got up to this price level and then this is the second time and you’ll see that yes, it did get above it, but then it came right back below it. So it technically failed them. You couldn’t get a large number of people across the globe that have this plan, who we lovingly call earth to go ahead and pay more money, couldn’t get enough buying traction for the price to go up. So conversely, of course, the price goes down and that’s the psychology of it. Now, three things happen. As I mentioned on those three things are number one, some people are going to look at this price level and they’re going to say, ‘I’m just not gonna do anything right?’

Forex Breakout Strategy Rules

It’s coming up there. I’m thinking of buying. These will be your potential breakout traders and some people will buy. We did get some prices above there and so some people say, no, I’m looking to buy. And then, on the other hand, the same breakout traders will say, I’ll buy it literally. Technically if you’re going to account pips, it broke above that high, so you’re going to get some buyers. They get stopped out, they get screwed, right? Hate that. Nobody likes that false breakout. The number two thing that happens is that some people will short that and so they’re looking for this kind of pattern. They’re looking specifically for false breakouts.

I think this is actually a better higher probability pattern to trade and they’re going to take a short and then you’ve got people who perhaps bought down here. This is group number three and group number three bought down here and I’m going to take profits into this level because they say ‘this is as high as we could go before, therefore, I’m going to lock in some profits there.’ Again, this is called the top dog trading rule of three and won’t even move forward a little bit more. We’ll squish up the chart a little bit so you can see the big picture. This is where the top dog trading rule of three comes in. So this again was the first. So this was the first time it reached that price level one. Less likely to continue. Could it continue?

Forex Trendline Breakout Strategy

Could it go above that resistance level? Sometimes it does, but your highest probability is the third, the rule of three. And the reason again goes back to psychology because now people are saying, ‘here’s this price level that has lasted this entire time.’ And what happens here, we gap above it, and this will be what happens sometimes when the market really wants to move. It will just gap right above that resistance level and not deal with it. So now the people that were going to take profits at it, well we’re already above. So now they’re thinking, ‘maybe I’ll stay in it because maybe this thing is going to go.’ The breakout traders who are buying will, they’re in and the people are going to go short. Well, they’re saying, ‘I don’t know, this doesn’t look good because we just get up above that resistance.’

So the energy is sentiment, that dynamic of what traders are doing now is completely different. Then you’ll also get people who wait for which we call it the throwback and this is the throwback, goes up and retraces back down to that resistance level and then they’re going to be buying there. The rule of three basically means this, when the market goes to a price level ones, that sets the stage and that’s basically just planting a flag. Then number two, the second time, a little less likely because you’ve got a lot of traders who have mixed emotions about it. It’s also less likely to break through. Could depend on rumor news and gossip, all kinds of stuff, right? Economic, situation. But as far as pure technical analysis goes, and by the way you can’t, I got to be really clear about this.

Breakout Strategy Forex

This is really important. You can’t just depend on support, resistance and the rule of three by itself. In fact, there’s no one thing in trading. No one thing in trading that will make you profitable. What makes us profitable in trading is putting together a number of non-correlated variables and waiting for the multiple lines. Then you put this together with the other things that you used in your trading. So this would be another thing to add to your trading methodology. One more little piece of evidence if you will. So then as we break above it the third time, now, one will get above it. Again, sentiment has changed. We retrace, this is the third time that we’ve come to this price level and let’s make sure I get the right one. So that’s one, that’s two.

Now the third time is the most likely it is to go. In fact, you know what led me. So now I can make this more clear. So there’s the first time it reaches that price level there. The second time. Now the third time is key. This is a real decision point in this. In this case, we said yes, it went up and we said, why? If we did not get this gap, if the market just went up here, stopped and then held resistance, came down a little bit, odds are that market is not going to continue to go up outside of the market’s going to come down, and again, it’s mass psychology where people are saying, you know what, this whole time we’ve been watching this level and no, we could not get enough buyers after three times.

Forex Trading

It’s kind of like three strikes you’re out, but it’s really just a mentality of people saying the global markets have tried to break above this price level three times and the markets have not been willing to do it, meaning the people in the institutions trading it and therefore people just aren’t going to pay more. They’re not going to pay more for that. So now it becomes a bearish situation. Everyone’s sentiment switches to bearish, so that’s the rule of three, works really good. I encourage you to look for that pattern and added to your trading methodology.

Rubber Band Trade Strategy

Now, if you liked this video, please understand that. Of course, it’s free. I give away a lot of free stuff, but if you got value from this, then you actually have a moral obligation to pay it forward. Show it with other people. Click on that beautiful, lovely share button below. It gives you a warm feeling inside. He will be glad you did. You’ll sleep well tonight. That’s really the very best thing you can do to keep these videos coming. I like to give these lessons about once a week and he’d given away for free, but I need your encouragement to keep me going.

If you’re watching on Youtube, go ahead and click the thumbs up and leave a comment. I love your comments, that’s another thing that really encourages me to keep these free videos coming. And I’m going to give you one of my favorite trade strategies is it’s called the rubber band trade. I’m going to give you all the rules, the filters, everything, and this trade has a very high wind loss ratio. I love this thing. I still treat it myself to this day. It’s a pretty simple trade. I can teach it to you in 26 short minutes, so get that rubber band trade strategy absolutely free by clicking on that image in the top right hand of the corner of this video or in the description below the video.

If you’re not watching on Youtube, there’s probably a link below or an opt-in form on the side. Once you do one of those things, I will personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

What did you think of this tutorial on Forex Trading Training Trading Breakout Strategy Patterns? Enter your answer in the COMMENTS section at the bottom of this page.

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Also, I’m giving away one of my favorite trade strategies that works in trading the markets. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with the first video.

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Risk Reward Ratio for Forex, Stock Trading and Day Trading

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Risk Reward Ratio
Risk Reward Ratio for Forex, Stock Trading and Day Trading that works in today's market. Sound approach in using risk reward ratio

Risk Reward Ratios are often times overlooked by most traders nowadays, and the theories underlying these ratios, in this discussion, risk reward ratio, are often times under-studied. Traders are so caught up by established candlestick patterns, which in some instances, don’t necessarily work, unknowingly underestimating the importance of learning and understanding the fundamentals running this structured knowledge. Thus, they go out and complain that the market is against them, and the like.

This video will tackle a sound risk reward ratio strategy that works in today’s market which will definitely help you tremendously in your trading career.

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Risk Reward Ratio

Welcome to this video on risk reward ratio for forex, stock trading, day trading and well, this applies to swing trading as well for that matter. So here’s the big issue. A lot of people out there will say things like, well, I won’t take a trade unless it has a better than three to one reward to risk ratio, four to one reward to risk ratio, five to one, reward to risk ratio, whatever it might be, and that’s all great. However, I want to share with you some real-life considerations when you’re taking a stance like that. The first issue is that risk reward ratios are generally inversely correlated to win-loss ratios. If you want to have more winners than losers, you’re going to have to be willing to take some trades that don’t have as good a reward to risk ratio, and that’s a psychological issue.

We’ll come back to that a little bit. So trades with the higher risk reward ratio tend to have a lower win-loss ratio. Why is that? There is a very clear reason. That’s because it’s simply easier to determine a short-term move in the market. Why is that? Well, because as more time goes by where things can happen in the market to change the market sentiment, and this is why; one of the reasons why I should say that the trades that have a better risk reward ratio, they take more time to develop and therefore they’re less likely to complete. And so when I want to say they have a worse win-loss ratio, I mean to completion. What we’re expecting it to have as a final target doesn’t mean you’d lose money necessarily if you manage your money well, but it’s less likely to complete its pattern.

What is Risk Reward Ratio

Let’s talk about a trade that has the best risk reward ratio, which is a reversal trade where you get in at the end of a trend, and then you’re looking to trade a new trend in the opposite direction. That is the single best reward to risk ratio trade there is. The average trend last five waves. So there is wave five right there. Now we would say, this is statistically the time to take a trend reversal trade and catch a trend in the opposite direction before it even confirmed and therefore get a fantastic reward to risk ratio. Definitely better than three to one, usually even better than a five to one reward to risk ratio. These are so phenomenal. So sure, we all love to risk a little bit to make a lot and that’s fantastic.

Here’s one of the challenges. So this particular trend went seven waves instead of five. And this is one of the challenges, it is very difficult to determine when exactly a trend will end. Five is statistically the average, but because it’s an average by definition, there’s got to be some trends that last only three waves. Now there are another seven waves and, therefore, again, you’re not going to have a good a win-loss ratio. You get stopped out here, for example, and this will turn into a losing trade. Another problem with trend reversal trades is that they’re the best reward risk ratio trade. But most trends don’t actually reverse. In other words, even if I really take this trade here and go short, odds are the market will stop trending. But it’s not typically going to immediately reverse and go into a downtrend.

Trading Risk Reward Ratio

What happens at the end of most trends is that they just kind of go sideways. There’s a cycle in the market of trending and non-trending, and what most likely will happen is that the market will go into a non-trending cycle. Then again, trading trend reversal trades. Sure, great reward to risk ratio, but only when they complete, and they do not complete most of the time. So here’s another example, again, you’ll see that we get the same thing where we get five waves and then it goes down and, that’s not it. If we would have taken this long for a trend reversal trade, it went down to meet another lower low. First of all, let me give you one solution to this when I trade trend reversal trades – yes, five waves is the average trend.

I don’t want to trade within the average. When I take trend reversal trades, I actually wait for wave seven. That means that sometimes the market will stop trending after wave five, and I won’t get an opportunity to take a trend reversal trade. That’s okay. I want that market to be more extended. I want it to be beyond the average because I have actually a really good chance then that seven is going to be the final low. Now, does that then give me a guarantee that the market will go up into a new uptrend? No, but what I like to do is what I call a hybrid trade. So scalp trades, okay. What has a better win-loss ratio since these big long trend trades or trend reversal trades that have a very good reward to risk ratio traits don’t have as good of a win-loss ratio?

Risk Reward Ratio Indicator

What has a good win-loss ratio, scalp trades, but then again, conversely, scalp trades don’t have as good of a reward to risk ratio. So I do a hybrid. What I simply do is I will take some profits if I take this long, which this is a typical trend reversal trade for me. That’s a half cycle right there. And so I lock in some profits there, in other words, as a hybrid, I’m doing a little quick little scalp trade, lock in some profits, and then adjust my stop, put in a trailing stop. This way I’m golden, right at this point really can’t lose, especially if I have my position hedged and so forth. And that’s really the key. Psychologically, it’s very important for most traders, including myself – to have more winners than losers.

And if I have more winners than losers, and I get some big trades in there as well, then that’s just the best of both worlds for me. So this is what I do; I’ll take a full position, I’ll take part of my position, also my profits at the half-cycle. By the way, if you’re interested, my cycle indicator to share with you how the cycles work and how we measure them mathematically with precision, feel free to send me an email at barry@topdogtrading.com. I also make Webinars, pretty much every week, sometimes twice a week where I actually give away my cycle indicator for free and give you a 40-minute tutorial on how to trade it and that’s how we determine where these numbers go. You see the notations of the numbers and the ABCs and so forth.

How to Calculate Risk Reward Ratio

That’s all done with my cycle indicator. Happy to give that to you for free. Anyway, we trade a half-cycle, we lock in some money because that half cycle is a super high win-loss ratio. Rarely do I get a loss on that. Then I moved my stop and now, I’m golden. Wouldn’t that be great to be golden on every single trade? And again, then our win-loss ratio. It was through the roof and even if it’s small, a bunch of small little winners at the end of the day or the end of the week is, it adds up. And then not only that, but you ended up then getting some big wins as well. Now let’s take that off and let’s see what happens here because I want to share with you another problem when people say, I will only take these big win-loss ratio trades.

Okay, we’re going, and then we’re good. It’ll fit in the chart. So this one worked right? This trend reversal trade worked and indeed our risk is tiny. This is literally the risk on the trade and our reward is huge. That’s somewhere there; probably right in about, there would be our reward. So, reward to risk ratio. Fabulous, we love it. We’d like to have these every day of the week or every hour of the day. The problem here though, if you look at this, is that the longer the trend continues, in this case, trend reversal trade. But the longer the market moves, the more fluctuations come in on their journey to the top. Psychologically, this would be a bit challenging from here to here and not a big deal from there to there.

Risk Reward Ratio Forex

Not a big deal from here all the way down to here. Here’s the question, could you stay in when it broke this low, for example. Would you still stay in? And this is very typical of long-term moves. They get these big fluctuations from the time you get in over here to the target over here and it becomes psychologically challenging to hang in there for the whole movement because you see your P & L, you’re given the money back, we’ll give you money back, give him any back.

These are things that you need to consider, and some of them are personal decisions as to your own trading psychology, what you’re comfortable with and so forth. So the bottom line is I’ll end with this. A lot of it is personal. You need to decide what works for your brain cells, so understand too that scalp trades occur more frequently. That gives you more trades every day or every week if you’re a swing trader, and they give you satisfaction. They help you with the problem of getting bored. If you’re only going to take trades that have a very high reward to risk ratio, you’re going to get bored and you’re going to get antsy. And when traders get bored and antsy, they tend to make mistakes and it’s not as satisfying.

Rubber Band Trade Strategy

Now, if you’re a really patient person and you can do that, that’s fantastic. Then that might be the way to go for you. If you find yourself needing more trades and getting reckless because you’re not getting enough trades, you might want to incorporate a scalping trading into your trading as well. Pick up some of those quick profits along the way, waiting for the big moves. And to me, again, that combination is really the best. So, my friend, if you like this video, please understand that it’s free. I give away a lot of free education and I just ask that if you got value from it. You pay it forward by clicking on the share button and sharing good things with other people.

That’s really the best thing you can do. If you’re watching on youtube, give it a thumbs up and leave a comment because I really love your comments. The encouraged me to keep providing more free tutorials for you. Also, I’m giving you one of my favorite trade strategies called the rubber band trade. It has a very high wind loss ratio talking about high win-loss ratios. This is probably the highest win-loss ratio trade I’ve ever seen in my life. Happy to share it with you absolutely free. Just click on the little icon there at the top right-hand corner of the video. I’ll be happy to email it to you. Also, there’s a link in the description box below. You can click on that if you’d prefer, and then once you do that, I will personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

What did you think of this tutorial on Risk Reward Ratio for Forex, Stock Trading and Day Trading? Enter your answer in the COMMENTS section at the bottom of this page.

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons.

FREE GIFT!

Also, I’m giving away one of my favorite trade strategies that works in trading the markets. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with the first video.

Those interested in Risk Reward Ratio for Forex, Stock Trading and Day Trading video that works in today’s markets also showed an interest in this video:
https://www.topdogtrading.com/support-and-resistance-trading-strategy/

Subscribe to my YouTube Channel for notifications when my newest free videos are released by clicking here:
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