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In today’s episode, you’ll discover a simple strategy for beginners to use in their trading.
So tune in right now…
Hey, hey, what’s up my friends?
In today’s episode, I want to share with you a simple trading strategy for beginners. You can use this strategy to trade the stock markets, forex markets, futures markets, etc.
I wouldn’t say this strategy is foolproof because you still have to do the work to validate the findings to make it work for you. What I’m going to do is to just give you a big overview, the framework of this strategy, how it works. Feel free to fine-tune it to your needs.
Again, please do your homework, validate it and don’t take anything that I share with you at face value.
What I look for when I share a trading strategy (especially for beginners)
There are three things that I look for whenever I want to teach something that is of a beginner level.
1. The trading strategy has to be easy to spot
Because if someone is new to trading, their eyes are not tuned to the charts and the price action. They will have difficulty spotting “patterns” in the market. This is why it has to be easy to spot.
This the first thing that I’m looking for whenever I’m teaching something of a beginner level.
2. The trading strategy must have a logic behind it
Because if there’s no logic behind the trading strategies you use, then you won’t have the conviction to continue trading them during a drawdown. You’ll start losing faith in the system and you’ll abandon it pretty soon.
But if you understand the logic behind it and why it’s supposed to work, then it’s easier for you to stomach the drawdown and continue trading it, get out of the drawdown and reach new equity high. So you must understand the logic behind the system.
3. Have sufficient time for the trading setup to unfold
This is important especially for new traders. If the setup occurs too fast, they won’t have enough time to react to it. We want ample time for this trading setup to occur.
Rules of the trading strategy
So now, let me share with you this particular trading strategy that’s beginner-friendly.
1. Look for a range market of at least 80 candles or more
You can manually calculate it or simply use a tool to tell you how many candles are in the range.
And the reason for using 80 candles is that it makes it easier to identify the highs and the lows of the range. When the range is formed over a longer period of time, it’s easier to spot the support and resistance.
Now you don’t have to be too anal about it. Sometimes if you have 75 candles, it’s fine as well. Just focus on the concept down here.
2. Wait for the price to reach either the lows or the highs of the range
If the price is in the middle of the range, there is nothing to do. Take your hand away from the mouse. You only want to get concerned if the price reaches the outer limits of the range, either the lows of the range like support or the highs of the range like resistance.
3. Look for a false breakout
This is pretty simple to spot. When the price breaks out of resistance and you thought the move is real, hold your horses don’t buy just yet.
Because what you’re looking for is the price to breakout and make a sudden reversal to close back within the range. This is what we call a false breakout.
4. Trade in the direction of the false breakout
So if the price breaks out of resistance and then closes lower back inside the range, you’re looking to sell this market. You want to sell on the next candle’s open and your stop loss can just go above the highs of the range, usually 1 ATR above the highs of the range.
In essence, you’re simply profiting from traders who bought the breakout and but got their direction wrong. You are profiting from traders who are trapped in this false breakout.
5. Look to take profit near the lows of the range
If you sell near the highs of the range on a false breakout, then you can look to take profits near the lows of the range.
One tip I have for you to not take profit at the extreme lows of the range because the market might not get to the specific level. Give it some buffer and take profit slightly above that level, and you’ll have a good chance of exiting the trade as a winner.
I call this – the false break trading strategy.
Let me share with you some bonus tips for you to bear in mind.
Tip #1: Go with a timeframe that you are comfortable with
Because if you imagine this, 80 candles on a daily timeframe will take 80 days to play out.
It could be too fast or slow for you, I don’t know what’s your circumstance. But for someone who trades this on a 1-hour timeframe, 80 candles will just be 80 hours, which is just 3 or 4 days. So the timeframe matters.
Pick a timeframe that you are comfortable executing the trade where you have enough time to monitor the market to plot your highs and lows of the range and then see how the price forms a false break setup.
Tip #2: Trade more markets
For those who trade on the higher timeframe like the daily or the weekly, I’m sure you can agree that such trading opportunities don’t come very often because it takes time for the range to form.
So you can trade more markets like the stock market, forex market or futures market, etc., to have more trading opportunities.
Here’s a quick recap…
- Have a range of at least 80 candles
- Wait for the price to reach the outer limits of the range like resistance and support, or the highs or lows
- Look for a false break – wait for the price to breakout of the range, and then suddenly collapse lower back within the range
- Trade in the direction of the false break – goo short on the next candle with a stop loss of 1 ATR above the highs of the range
- Look to take profit just before the lows of the range
(What I’ve just described is based on shorting the market, so if you’re going long, it’s just the opposite.)
With that said, I wish you good luck and good trading. I’ll talk to you soon.