Trade Entry Points
Where you enter a trade depends on the strategy you trade with. If you trade reversals you need to look for reversal price action or an indication of reversal with a technical indicator. But if you are a trend trader, you need to look for continuation patterns.
The chart above shows a trade entered. The trade was entered after a double top formation alongside a bearish engulfing candle. Usually, it is best to enter a trade after you confirm the reversal of the trend.
Also, an important thing to note is that the reversal patterns are stronger in major zones. If you cannot remember how to find zones, read the technical analysis section in the basic guide.
Now that you know how to look for entry points, we will now look at two very important things, placing the stop loss and taking a profit.
Placing Stop Loss and Take Profit
Now, let’s look at another example. The chart below shows a horizontal channel breakout. For this kind of setup, it’s always best to wait for the breakout to happen before entering a trade.
It is very important to understand how to place a stop loss. It is advised that you should never trade without a stop loss. Stop loss prevents you from losing a lot of money.
The stop loss is placed depending on your risk-to-reward ratio. Also, it is placed in the opposite direction to your trade. This prevents you from losing a lot of money if the trade does not go in the direction you expected it to go. If the market goes in the opposite direction it stops at the stop loss.
Let’s look at an example of placing the stop loss and take profit.
As you can see in the above chart a breakout occurs from an up channel. The breakout occurs with strong bullish candles. The stop loss and entry points are marked in the chart.
The take profit can be placed according to your risk-to-reward ratio. We have marked both the 3:1 and 2:1 risk-to-reward ratios.
Now let’s look at another example. The chart below shows another up channel. This time we will be trading the reversal. As you can see there is a formation of a bearish engulfing pattern on the resistance.
As you can see you can place the stop loss a bit above the engulfing candle and take a profit based on your risk-to-reward ratio.