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Higher Time Frames, Higher Probability
12/03/2012 6:00 am EST
When evaluating whether or not to take a trade or when searching for trading opportunities, it is best to look for those that offer low risk with high probability, says Brandon Wendell of Online Trading Academy.
It is all too easy to get tunnel vision when it comes to trading. Often when a person trades, they will focus so much on the time frame on which they are identifying their trades that they fail to acknowledge the dangers that can affect their trade from a larger time frame.
When looking to make a trade, a trader should always consult the larger time frame to make sure that they are trading with the dominant trend and not approaching a major supply or demand zone. If price is nearing a larger time frame supply zone, then taking trades on the long side has increased risk.
The same is true when approaching a demand zone from the larger time frame. Look at how the shorting opportunities become less profitable.
When a trader is deciding to take certain trades or is searching the markets to find trading opportunities, it is best to look for those opportunities that offer low risk with high probability. Think of price as a person walking through a room. If there is a chair in the way, they could easily push the chair out of their way and pass through. That chair is similar to the supply or demand from the smaller time frames. Price will break those levels when in the impulsive phase of the trend.
However, the supply or demand of the larger time frame is like the walls of the room. A person cannot easily break through the wall (if they can at all), just as impulses in a trend will tend to halt at the supply or demand from a larger time frame.
The phenomenon I am describing is called the curve. Learn how to identify and use the curve for increasing your odds for success in the markets.
By Brandon Wendell, Trading Instructor, Online Trading Academy
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