Step Back From The Crowd & Trade Weekly Patterns

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Step Back From The Crowd & Trade Weekly Patterns

You don’t have to be glued to your trading screen to earn from stocks, futures, and FX methods employed by top market participants. Begin with a large step back, focusing on weekly patterns that produce more consistent highs and lows than daily or intraday price movement. Then, create management principles that will enable you to sleep at night when the rest of the world is tossing and turning, transfixed on the next opening bell.

In recent years, algorithms, often known as high-frequency trading (HFT) robots, have introduced significant risk to intraday sessions by jamming prices upward and lower to find volume clusters, stop losses, and inflection points when human traders may make bad judgments. By matching entry, exit, and stop losses with the boundaries of longer-term uptrends, downtrends, support, and resistance, weekly charts prevent this predatory behavior.

The Big Picture Approach

This wide picture technique significantly reduces noise levels, enabling the weekly trader to discover possibilities that short-term players who scroll through their daily charts at night miss. To be sure, these trade setups need patience and self-control since weekly price bars might take many months to reach actionable trigger points.

However, the larger payoff potential compensates for the lower activity level, and overall labor effort enables the trader to enjoy a life outside of the financial markets.

Using Weekly Charts

Weekly charts use special risk management criteria to prevent being caught off guard by large losses:

  1. Reduce the size of the position and avoid using margin excessively. When you let prices travel several points before collecting your profit or loss, a few hundred shares will accomplish the job of a thousand or more.
  2. Choose your positions carefully. In general, highly capitalized stocks and the most popular exchange-traded funds (ETFs) provide better weekly trades than small cap darlings or high-flying biotechs, which may plunge 30% to 50% after an unfavourable FDA judgment.
  3. Pay attention to the boundaries of long-term ranges and moving averages. Opening a weekly trade in the midst of a 15- or 20-point sideways pattern is a definite way to lose money, however purchasing a retreat to the 50-week EMA may provide excellent rewards.
  4. Recognize the value of opportunity cost. The cash placed up for a weekly trade that will last many months cannot be utilized for a greater payoff setup that emerges out of nowhere while you are managing the other position.
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Feel free to include fundamental trading approaches into your weekly technical trade criteria. Solid profits growth, for example, can boost your confidence when purchasing a company that is approaching a weekly support level after a sell-off. Furthermore, dollar cost averaging may be used aggressively, with positions being added to as they approach and test certain action thresholds. However, if support fails, do not be deceived by the company’s financial statement; you will need to accept your loss forcefully.

A Historical Example

Consider a previous example with four weekly trade setups created by Powershares QQQ Trust (Nasdaq:QQQ) during a 14-month period in 2013 and 2014.

Image by Sabrina Jiang © Investopedia2020

In November 2013, the fund began a weekly trading range, with support at 85. It rose over 90 at the start of 2014 before falling down to long-term range support in April. Weekly traders might open low-risk bets at that level (1), before of a seven-week rally that gained more than seven points. Furthermore, as it rebounded above January resistance (2), a second buy signal emerged, recommending a fresh entry or continuation of the original position, which is presently holding at a significant profit.

When it sank to support at 91 (3), built by the June breakout, the sharp October decline set up a third weekly trade entry. That level was also precisely lined with support at the 50-week moving average, considerably increasing the chances of a bullish result. The fund soared vertical after breaking out of that support zone, testing the annual high and breaking out towards the end of the year. When it reaches triple digits in November, a final buy signal is sent (4).

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Pullbacks towards weekly support (red circles) in April and October highlight a key challenge in the execution of weekly trades. Both drops broke through support mid-week and rallied, ending Friday’s session above the challenged levels.

While positions should be taken as near to weekly support as feasible, stops and other unprofitable exits should be avoided throughout the day, which means deferring exit choices until the weekend or when support is broken by many percentage points.

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