As
we all know there is an unlimited amount of ways to trade the financial
markets. Each person sees the market in a different way, has different skill
sets, trading experience and risk tolerance levels. While some individuals
create and use complete systems to make money there are some very basic
trading strategies which still work well and require nothing more than basic
charting, patients and a little money management.
Let me explain:
SPY - SP500 Index Trading Fund
You can clearly
see the longer term trend which is down (blue trendine). But from simply
drawing a couple trendlines and looking at the MACD (momentum) indicator you
can see there is a possible trend reversal taking place. So far the SPY has
broken out of its down trendline with a 4 day pop, and it's now pulled back
down to test support. A close below the trend line or the 50MA would be the
exit points if the market did start to go south.
The SP500 is
still stuck under major resistance, its 200 day moving average. But is
trading above key support levels (20MA, 50MA and Trendline). I can feel the
tension in the market between traders and we are about to see a big move once
a breakout to the upside or down side is established. At this time its best
to be in cash or have a small position with a protective stop in place. Once
a trend starts there should be some low risk entry points along the way. If
we see a strong reversal to the upside On Monday or Tuesday I would expect
big buyers would step in to catch this new trend up.
GLD - Gold ETF Trading Fund
Looking at the
price of gold we can see the trend is still down along with the momentum. A
breakout would be the first step towards a possible entry point but I prefer
to wait for a pullback after the breakout has taken place. Once we get a test
of support I look to enter a position once there is a strong reversal candle
to the upside. From there I draw a new support trend line from the previous
low and connect it to the new pivot low (bottom of reversal candle). That
becomes my new protective stop.
Gold still has
some work to do before I would even be interested in taking a long position
for a swing trade. But on a short term time frame (intraday charts) gold
looks to be forming a low risk setup which I hope unfolds for my subscribers
this week.
USO - Crude Oil Trading Fund
Oil has been
trading in a large bearish pennant for the past 2 months and it is nearing
the apex of this pattern. The longer term picture of oil is bearish but the
most recent dotted trend line and the 20/50MA crossover is signaling some
strength. Also the momentum for oil is positive and that helps support the
price also. Again if this was to breakout to the upside I would wait for a
low volume pullback to test the breakout level, then enter on a reversal back
up.
Oil is one of the
more challenging commodities to trade because it is affected by the US
Dollar, Political Events, and Weather. In short, even if you had the analysis
and timing correct there are other factors which move the price of oil on a
regular basis that could quickly turn the trade against you. That being said,
keep trades small when trading oil.
How to Find Low Risk Trading Setups:
In short, trading
can be complex, simple or somewhere in between. You can spend 14 hours or 20
minutes a day analyzing it depending on what investments you trade, whether
you're trading full time or just checking up on longer term investments.
This analysis and
basic strategy shown above can be profitable if followed correctly and works
for stocks, commodities and indexes. It's just to show how simple one can
swing trade the market using very basic analysis. Personally I use a much
more complex strategy incorporating 15+ other data points which allows for
precise entry and exit points.
Chris
Vermeulen
Editor, the Gold and Oil Guy
Chris
Vermeulen is a trader and newsletter writer specializing in the price of gold
GLD ETF, Junior Mining and Energy Stocks listed in the US, Canada and
Australia. Please visit his website for more information.
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