Tuesday, November 29, 2016

7 Ways to Improve Your Price Action Trading

The holidays are right around the corner, and with that, we need to anticipate erratic market activity. From slow, stagnant markets to volatile sell-offs, trading can vary quite a bit. Remember these ideas when your placing trades this holiday season.

1. People take vacations during this time of year - that's obvious. However, large trading firms may be trading less because the big wigs are out of town or they want to end the year on a conservative note. That leaves the markets to the small guys. With less volume in play, those who form the middle and bottom of the market may push prices less predictably than normal. Have your DOM ready to close out a trade if things go wacky.

2. Market closing hours can catch you by surprise. On half-days or days surrounding non-trading days, expect the market to move slower than normal. You don't want to be in a trade and then surprise - the market closed early!

Here are some upcoming dates:

Thanksgiving Day, Nov. 24 - market closes at 1 p.m. EST and reopens at 6 p.m. EST
Black Friday, Nov. 25 - markets close early at 1:15 p.m. EST
Christmas Day Observed, Dec. 26 - markets are closed and reopen at 6 p.m. EST
New Year's Day Observed, Jan. 2 - markets are closed and reopen at 6 p.m. EST

3. Ever heard of the Federal Open Market Committee (FOMC)? Their meetings can disrupt the markets and cause unexpected volatility. They are meeting twice in December 2016: on the 13th and 14th. After that, they meet again in late January. FOMC days are usually choppy.

4. Use the ATR (Average True Range) to assess volatility and risk. John Paul likes to use it with a period value of four to gauge potential profit target and stop loss settings. It's not an indicator of direction. When above five points or below 1 point, stay out.

5. At the end of the year, businesses are trying to reach equilibrium and show a nice performance record. Large positions are exited that cause ripple in the markets. Don't be taken out by this. If you see sudden volatility spikes, lay low until things normalize.

6. Most of the time, markets like to increase in value by year's end. If you're in a long-term short position, be weary of holding it too long. If you hold the position through January and January just so happens to show the January Effect, you could be in hot water!

7. Remember to cherish the holiday time with your family. It's a great time to unwind and put trading aside for a little while. Also, studies show that taking breaks can increase cognitive ability focus on tasks (like trading).

We hope you and your loved ones have happy holidays ahead!

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