Here is the thing about trading: It can be daunting, especially for those who are new to this business. If you are new to the world of trading, thousands of questions must be running through your mind, such as whether it is the right time to enter trading.
You might be wondering about the right time to buy and the right time to sell. You might as well be wondering about the safety of the different platforms, such as is eToro safe or whether it is too risky to go ahead and join the platform.
Nonetheless, to make things easier for you, we have made a list of a few things that you will want to look into before entering any trade.
Keep reading!
1. Assess the Market Structure
The first thing that you will want to look into any trading platform is the market structure. You will want to assess whether the current structure of the relevant market is in an uptrend or whether it is in a downtrend. You will also want to assess whether it is in a range.
Once you can define the current trading market structure of the trading platform, you are in a better position to know what to do in various circumstances. Suppose the market is in an uptrend; then you know when to buy the dips.
And, if the market is in a downtrend, then you know when to sell the breakdown. Simply put, once you have defined the market structure, then you know exactly what you should be doing.
2. Understand the Entry Trigger
The second thing that you will want to look for before joining a trade is the entry trigger. You will want to assess the trading setup or the trading pattern that will get you into a trade.
Suppose the market is going in an uptrend; then it comes into an area of value, and now you will be waiting for an entry trigger to confirm your potential hypothesis that the buyers are about to step in and push the price higher.
There are many variations for the entry trigger, including candlestick patterns and the RSI (Relative Strength Index) crossing 30; you could also look for a break of structure where you are anticipating the price to make a series of consecutive higher highs and higher lows.
So, before you enter a trade, you will want to know all the different ways that you can use to your benefit for entering a trade. And once you have found your entry triggers, the next thing that you will do is your exits.
The existence can typically be categorized into two parts: firstly, the exit where you are wrong, and secondly, where you will exit the trade when you are right. Ideally, you should know when to get off the trade, irrespective of which platform you use.
Ideally, your stop-loss must be at a level where it invalidates your trading setup if the price reaches it. When it comes to exiting the trade when everything is right, then it comes down to the market structure.
Sometimes, you also have to rely on your gut feelings regarding the right and wrong time to exit a trade.
3. Assess the Area of Value
Another thing that you will want to know before entering a trade is the area of value. Suppose the market is in uptrend, but the price could be in no-man’s land or in unchartered territory. At this point, you wouldn’t want to be buying because the price is not in an area of value.
So, the question is, how do you define an area of value? There are certain ways to do this. For instance, you can define the area of value with the help of “support & resistance.” Suppose the market is in an uptrend, and you can wait for it to test the previous resistance again, which could then eventually become support.
You could also wait for the price to retest a specific moving average to the market respects, such as the 14-day moving average. You could also wait for it to retest the upward trend line. You see, the area of value would vary as it depends on the market conditions and how strong and healthy the trend is.