In today’s episode, you’ll discover the secret to trading like a sniper.
So tune in now…
Hey, hey, what’s up my friend? In today’s episode, I want to talk about how to trade like a sniper.
Snipers are meticulous, slow and careful. When they point at the target, they want a good hit rate. It’s not a machine gun where you keep firing. They are slow, steady and accurate.
You want to bring those sniping traits to trading and look for the best trading setups. So what are the things to look out for?
1. Look for a trending market to trade with the trend
When the market is trending, the path of least resistance is pretty clear. Let’s say the market is in an uptrend. You’ll realize that the trending move, otherwise known as the stronger leg of the move in an uptrend, is usually longer than a retracement move.
If you’re trading with the trend, then this offers you greater profit potential as the market could move further in your favour compared to you taking counter-trend trades.
2. Trade from an area of value
Just because the market is in an uptrend doesn’t mean that you want to be blindly buying because you could be buying near the highs when the market is about to make a pullback or about to make a reversal.
And the problem with buying when the market is overstretched is that there’s no logical place for you to set your stop loss. Because the nearest swing low or support is usually very far away. And that doesn’t offer you a favourable risk-reward on your trade.
Instead, trade from an area of value. My definition for an area of value is where potential buying pressure could step in. For example, it could be an area of support.
Support is a potential area on your chart where buying pressure could step in. It could be an upward trend line, it could be a trend channel, it could be the moving average that a market has respected over the last two or three times. This is what I mean by area of value.
In an uptrend, your area of value could be an area of support or it could be a respected moving average, etc. Nonetheless, trade from an area of value. That’s number two.
3. Stacked area
This concept is nothing new. You want to make sure that your area of value on the trading timeframe, like the daily timeframe, coincides with an area of value on the higher time frame, like the weekly timeframe.
Let’s say your area of value on the daily timeframe is an area of support. And you realize that that same area of support on your chart coincides with a weekly upward trendline.
That sweetens the deal a lot because that area now is watched by even more traders who trade the daily timeframe, as well as traders who trade the weekly timeframe. That area becomes much more significant.
And when it’s more significant, you can expect a larger reaction at that area. Makes sense? That’s number three – stacked area.
4. Wait for an entry trigger
An entry trigger is something as simple as a price rejection, where the market comes into your area of value, and the price gets rejected quickly from that area.
Usually, this type of price rejection or price pattern that you see on your chart could be something like the hammer, the bullish engulfing pattern, where the market comes into support, and bounce higher to quickly leave support. This is price rejection.
This is an entry trigger that you want to wait for if you want to trade like a sniper. These are four of the concepts to keep a lookout when you’re trading the markets and it would help improve your odds when trading.
Here’s the good news, I have a couple more tips just for you.
Bonus tip #1: Relative strength
If you trade the stock markets, you want to utilize this concept called relative strength. What this means is that you want to buy the strongest stocks out there.
Here’s the thing, there are easily thousands of stocks out there in the US markets and how do you define what’s strong and what’s weak?
Well, it’s very simple. You can use this indicator called the Rate of Change (ROC) indicator. It simply measures the change in price over a given period. For example, the 50-week ROC simply measures the change in price over the last 50 weeks.
You want to rank the stocks according to their 50-week ROC and focus on buying those stocks that has the highest ROC values because these are the stocks which are the strongest over the last 50 weeks.
They have increased the most in price and these are strong stocks that tend to continue outperforming the market. This is based on my own backtest research as well as the academic research that I’ve studied.
So if you trade stocks, focus on stocks that are having the strongest momentum, focus on stocks that have moved up the most in price over the last 40 or 50 weeks.
Bonus tip #2: Understand the different market behaviours
For those of you who trade the forex markets, you must know that each forex pair has different behaviour.
For example, if you look at the GBP/JPY on the daily timeframe, this is a market that exhibits a trending behaviour. What this means is that whenever it breaks above the previous day high, it tends to continue moving in that direction.
While on the other hand, a market like AUD/CAD, whenever it breaks below the previous day low, it tends to reverse and goes back up in the opposite direction.
This again, is understanding the different behaviour of the FX markets. And again, if you want to trade like a sniper in the FX markets, it’s important to understand the different characteristics of different currency pairs out there.
Because if a market has a trending behaviour and you’re about to trade a breakout, that will put the breakout odds in your favour.
For example, GBP/JPY is a trending market, so if you trade a breakout, or you trade a trend continuation trade, then the statistics proved that the trade will be in your favour.
With that said, let’s do a recap…
- Trade with the trend
- Trade from an area of value
- Stacked area
- Entry trigger
- Relative strength – focus on buying the strongest stocks out there
- If you trade FX, understand the different currency pairs’ behaviours, and you can use those statistical data to your advantage when you’re trading certain setups
With that said, I wish you good luck and good trading. I’ll talk to you soon.