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For many, the idea of low risk is to use a stop-loss that is not far from the entry. While the risk amount may not be large, this is not necessarily a 'low risk' scenario.
In fact, arbitrarily placing stop-losses based on some fixed amount or percentage of profit objective will often result in getting stopped out often. Even with tight stop losses, these will add up to substantial losses in all.
In order to keep risk low, timing of trade entries must be close to price areas that make sense for stop-loss orders to be placed beyond, such as swing bottoms or swing tops, or areas of support and resistance that has proven in the past to turn prices away.
An example of this would be a trend that has ended prior corrections enough times to draw an obvious supportive or resistant trend line, and then to note if price once again reacts to this angled line. If it appears to be the case, a stop-loss can be placed beyond the trend line.
Indicators, such as the MACD, RSI or Stochastic can be used to help determine if the market is likely overextended before deciding on taking such trades. There is nothing wrong with having additional filters to help decide on whether to take a trade even if the risk appears low.
In my 19+ years as a trader, I personally have found dynamic cycles to be an effective tool for finding low risk trading opportunities. With dynamic cycles, swing bottoms and tops are pre-determined and trades can be executed off them when they actually confirm. So when these are traded at the end of trend corrections, your risk exposure is simply the price bar that confirmed the swing bottom or top.
Trading with trends is clearly the best way to go, as long as you are not entering right when the trend is ending. For most, this is hard to determine. When a trend is up, it will be making higher swing bottoms and higher swing tops. For entry, we're only interested in the higher swing bottoms. For down trends, where there are lower swing tops and lower swing bottoms, we're only interested in selling the lower swing tops.
The key to profits is to buy off the higher swing bottoms and sell off the lower swing tops, but to only do this UNTIL the trend has run its course. In order to help determine trend exhaustion, the use of a reliable overbought/oversold indicator needs to be used.
Within the AmazingAccuracy.com Precision Trading Membership, these are the tools our trading members use. We spot the trends, we note the oversold/overbought condition of the trend, and then we use dynamic cycle turn dates to buy off higher swing bottoms for bullish trends and sell off lower swing tops for bearish trends. That is how we find excellent trading opportunities and also the key to low risk trading.
In these volatile markets, small traders may find it hard to trade because many need to use large stop-losses to avoid being stopped out too early. Yet, small traders cannot take too many hits like this. So to compete and to succeed, the trader needs to find a timing approach that will allow entry close to logical stop-loss price locations and to avoid using arbitrary stop-loss orders or loose timing techniques.
Cheers!
Rick J Ratchford
ProfitMax Trading Inc.
http://www.amazingaccuracy.com
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Commentary and Forecasts made are for EDUCATIONAL PURPOSES ONLY and are not to be construed as a recommendation to buy or sell anything. All forecasts and analysis are produced with the aid of FDates, dynamic daily/weekly cycle turn dates calculated using the proprietary FDate suite of applications and published each week via the FDates Precision Trading Membership (AmazingAccuracy.com). In spite of the exceptional accuracy of FDate analysis, the regulatory agencies require that you be aware that "past performance is not indicative of future results." Trading is risky and heavily leveraged. The potential to make large profits also includes the potential for losses.
Copyright (c) 2007 - ProfitMax Trading Inc. FDates (tm) is a trademark of ProfitMax Trading Inc.
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