Here is a quick breakdown of my style of trading (Forex).
The red horizontal lines are support and resistance. These are prices that have been hard to get above or below in the recent past. When a price approaches support or resistance, there is more chance that the price will reverse it’s current trend, so it should be watched.
The chart uses Japanese candlesticks to record price. There are other styles of displaying price available. A red candle indicates that price is falling, a green candle indicates price rising.
My profit to loss ratio is a minimum of 1.5. If I can get more, I will, but I will not take a trade lower than this ratio.
- The candle approaches the support line, and the 2 candles with the long lower tails indicate to me that prices are likely to rise.
- I place a long trade to buy at 1.23856, with a stop/loss at 1.22119 and an initial “take profit” target at 1.25957.
- I place my stop/loss below the long tail on the last candle before price rises to make it harder for it to be reached but still keep to my profit to loss ratio.
- The price falls after the initial rise and makes me nervous but it doesn’t stop me out and I leave it alone to see what price will do next.
- Price rises again, falters for a couple of days, but eventually continues on up and triggers my “take proft” (sell order).
Any candles that are in the green area between the times that I bought and sold mean that I have profit. If they are in the red area, I am at a loss, but unless price goes lower that my stop/loss order I stay in the trade.
As you can see (in hindsight), price continued to rise significantly after I took my profit and closed out the trade and would have made me a huge profit if I had stayed in the trade but I decided to take my profit before price hit the next red resistance line.
The actual profit all depends on how many units you are trading, for example 10,000 units could have made about $200 profit, 100,000 could have made $2000. The chart is showing daily prices where each candle represents one day of price movement. This trade took 10 days to hit my sell order and produce the profit that I desired. $200 profit for 10 days is ok, $2000 for 10 days is great. The size of the contract can be scaled up or down depending on the size of your trading account.
Traders usually trade on margin which basically means that the trader only needs a small percentage of the total trade value in their trading account in order to place the trade. This allows the trader to have much larger trades than would be possible without margin. Each broker has their own limits and policies for margin trades.
I caution you not to trade anything until you have found, and you are comfortable with a trading style. It does not really matter which style/system you use as long as it works for you and keeps you in profit. You will have to investigate different systems in order to find the one that you like. If you don’t know where to start CLICK HERE for several trading styles