How to Trade Easily and Make Money in Stock Markets?

Monday,26 December 2016

As U.S. and European markets are holidaying, let us polish our trading plans and methods to make trading easy, simple and generate profits almost every time.

You must have heard the usual stock market adage- “plan your trades and trade your plan”.

That is very true and here is a simple way of planning your trades, then trading your plan. It is a very effective – and simplest method and if you follow it, you’ll cut down your over trading and increase profitable trades.

Many traders call it “trading system”; I prefer to name it “trading map” for two reasons; first, “trading system” can be confused with trading software or platforms, and secondly, going for a treasure hunt requires a map to show you where the treasure is hidden!

Here is an example of a trading map of Dow Jones (don’t get confused, explanations follow):

To trade successfully; you need to know:

1) Right trade entry points

2) Right trade exit point.

Fibonacci levels and Moving Averages help you in identifying these important points, both in range bound markets and in trending ones.

Fibonacci levels are usually drawn on daily charts, from top most to lowest points which stretch between many month.

Here, we are taking example of Dow Jones as U.S. markets present a unique problem. How to draw Fib levels when indexes have been rallying so much that they have crossed their highest points and have become range bound?

In such a situation, we draw Fib levels on hourly charts. Here, in this chart, Fib levels are drawn between the top most and lowest points of hourly charts:

You will notice, this index is range bound with a broader range between point 1 and 2 (daily range) and a shorter range of point 3 and 4 (intra day range).

The intra day range becomes clearer if you change chart setting to  15 minutes. Notice, we have added 20-Day Moving Average and RSI indicators too, for better understanding of what can happen in next session.

Now, this chart is giving one positive signal (Price jumping above 20- DMA) and two negative signals ( RSI turning flat even though price moving up & price closing near a resistance level).

To finalize how to trade this chart, we note down our observations, possible trading actions, what kind of trade can be initiated at what level, trade entry/ exit points, how many lots you can buy/sell at what level and how much capital you will require. Thus, our final chart will be like this:

You can add more notes/ observation to your chart and when markets open, and the price moves, you will already know what you can do at that stage- and at any other stage through the session!

You will not have to guess any more which way market is going to move, because you already have all moves mapped on your chart!

Give markets 15-30 minutes after the opening bell (patience is the key) and the price movement on your chart will tell you what is happening and how you take take advantage of its movements to trade profitably.

Remember two things to use this method successfully:

1) Have patience. Wait till the price reaches a definite trade entry point. Only then start trading. If you follow this rule, you will need to trade only once or twice a day and get the full length of that day’s trend; from top to bottom (sell) or bottom to top (buy). This will also cut down you over trading and bring down your brokerage charges.

2) Don’t be greedy. One small successful trade a day will help you accumulate huge profits over the month. You don’t need to trade heavily, in too many lots or put in too much capital in your trading. Small but consistently successful trading is the magic formula of profits in stock markets.

Keep experimenting with different time frames and in a few sessions, you’ll realize how markets move within same levels while going up and going down. Same support, same resistance and same trading pattern between those levels.

And then, trading will become easy and profits more frequent. (That will be the perfect Christmas and New Year gift to our readers 🙂 )

Good luck and see you in trading rings when global markets reopen after a few hours !

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7 Responses to How to Trade Easily and Make Money in Stock Markets?

  1. Sashank says:

    Very good tutorial. Thanks.

  2. Sashank says:

    What other technical indicators do you use other than RSI? Can you give us few of your personal favorites.

    • Administrator says:

      I use minimum indicators. Only Fib levels and RSI on daily charts. For intra day trading, I depend on Moving Averages (20, 50, 100, 200) which give excellent cues of support and resistance levels through the session. Out of these, 20 DMA is first indicator of support/ resistance. If price moves above this level, that means, some bounce back in coming in. If price falls below this level then it indicates selling pressure. I use Bollinger Band to check support and resistance in range bound markets.
      That’s all. I do not use all these indicators together. Only pivot and MAs are constant, other indicators I use just to check from time to time.
      Hope this helps.

      • Sashank says:

        Thanks for replying. May I ask what is the success rate usually with the ones you are using. Out of curiosity, are there any particular scenarios that you remember where the market moved completely opposite to what your indicators have shown?

        • Administrator says:

          That is a very interesting question, because it suggests that price action and indicators are two different things. Actually, indicators are “supporting actors” that are related to the “main hero” which is price action. Indicators either confirm the price trend or contradict it, thus indicating a trend reversal. Two classic examples of these trend reversal indications were seen last week in U.S. and Indian markets and came true.
          In Dow Jones, RSI was overbought, started moving down while price was still going up, showing a divergences and thus hinting at a trend reversal from up to down. While in Indian markets, RSI in Nifty was oversold, the index was near a major support level thus indicating a possible bounce back from 7,900. Both these trend reversal happened.
          Except for sudden news-induced movement in price (such as some terror attack, or Brexit result etc) I have never seen markets moving completely opposite to what indicators show. In fact, I have always seen indicators, including candlestick patterns, showing how price was going to move in short term duration during intra day trading too. For example, a bearish or bullish engulfing candlestick even in 3- minutes chart is sure sign of a trend start or trend end. If price moves below 20-Day Moving Average (10 minutes or longer duration chart) for intra day trading shows resistance, and price moving above the same level, on same time duration chart will show strong support.
          On the other hand, I remember hundreds of times when I ignored what indicators were showing and got trampled by markets 🙂 In nutshell, the success rate of indicators I use is 100% but my own success rate is yet to reach that level because I still keep ignoring indicators at times and trading on my thinking about how markets are going to behave.
          Self-control and discipline are necessary ingredients in successful trading. If we can combine those with technical indicator, that would be like hitting the jackpot:)

          • Sashank says:

            Thanks for clarifying.. I too had numerous occasions where I hurried into a trade and later saw the indicator showing otherwise. Now I have become more sensible. At the End of day as you said, its about self discipline. I learnt a lot from your blog over the years especially watching the international markets for clues. Its always good to hear from a trader, gives me confidence and comfort. Cheers to trading.

          • Administrator says:

            Thanks for your kind words of encouragement. Yes, patience and self discipline are first rules of successful trading. Let’s hope, we all succeed in this field and learn to follow the markets. Best wishes.

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