STRATEGIES

When taking any buy or sell entries in markets, make sure you know exactly where price is with regard to the larger time frame supply/demand curve, writes Sam Seiden of Online Trading Academy.

I have been in the trading business for over 15 years as a trader, fund manager, and trainer, beginning on the floor of the Chicago Mercantile Exchange. While I feel like I have seen it all, the one thing that still surprises me is how most traders handle breakouts. Most traders seem to let emotion complicate what can really be a simple, rules-based, and very profitable strategy. Trading breakouts can be high risk, high stress, low reward, and low probability, or this strategy can be low risk, low stress, high reward, and high probability. The difference lies in how you “think the markets.” Do you think like a novice retail trader or do you think like an institution? The answer determines how you enter into this type of position and that’s the key when it comes to success or failure with the breakout strategy.

Before getting into the details of the strategy, it’s important to understand two key components of markets.

1) Why do prices move in any market? Price in any market turns at price levels where demand and supply are out of balance. The consistently profitable trader is able to identify a demand and supply imbalance, which means knowing where the REAL buyers and sellers are in a market.

2) Who is on the other side of your trade? Trading is simply a transfer of accounts from those who don’t know what they are doing into the accounts of those who do. The consistently profitable trader knows whether the person on the other side of their trade is a novice trader or a consistently profitable institution.

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