One of the most important skills a trader needs to learn is to anticipate where other traders can enter.
That is why we use indicators to help us.
The only problem with most indicators is that they are subjective. That can provide false signals about the market. A proper reading of market structure will surely help you determine where traders enter.
In this article we will find out where to find the traders action zone.
When said traders action zone, there is a high chance that this traders will enter this area. In fact it's so simple, they probably do it differently, but they just don't know.
In this strategy we can use other chart structures such as support and resistance.
But in this article will be used if example is the moving average. I hope you have an idea how to use a moving average. If you are new to reading my article about moving average first .
How then can we determine the changing market trends using the moving average?Cross over! Yes.
We can say that when the crossover is above two moving averages, it could be a sign of a possible trend reversal. But the question is, will you immediately change the position when this happens?
Imagine if you were a momentum trader, you would immediately enter the trade based on the strength of the price action you see on the chart.
If you are a breakout traders, when there is a breakout in support and resistance or moving average you will enter a position.
But if you want to enter the trading action zone, you won't do these things. You have to wait, and be more disciplined.
This strategy uses mean reversion and not momentum. In other words, you wait for a pullback. Not super-extended pullback, always remember locations matters in trading.
The pullback is required not to exceed the swing low. In this strategy the risk factor of entry point is not high and it is easier to believe.
Let me explain a bit.
The example image we see above is a pair of ETH / BTC daily charts. An example of a downtrend after the death cross.
This is the sign of changing trend from an uptrend to downtrend. The other traders will soon have to crossover for a short position.
Or else the bull's weak momentum based on price action. They can make more money, because they come in early, but high-risk approach.
Not all trades are created equal, and not always so. There are times when a crossover can give you a false signal, and will not continue the downtrend you expect.
That could result in a stopped out and a losing trade. And if you turn to the indicator like the RSI we see in the example image. Oversold right?
Traders tend to buy, because they think they'll be reversed. Newbie traders will surely fall on this one. Don't rely too much on indicators.
But if you have to wait and if your trading plan works, wait for the price action to reach the trading action zone area. That would be low risk but high reward trade.
Tip
In this strategy it is more important that we enter into the trade at first pullback.
Like for example after the cross over of the moving average and before the trend. There will be a first pull back and you should consider entering a trade.
The chances are that the trade will be more successful if we can enter the first pullback.
But that doesn't mean that we can't enter the second or third pullback. It is still possible, but the chance of being successful unlike the first pullback is smaller.
This strategy is more suited to swing trading. If you are a scalper or day trader, you may want to try it, but it is more recommendable in swing trading.
Alright, that is just a simple explanation of traders action zone that is sure to help any traders, professional or novice.
If you have learned anything new in this article, I would really appreciate if you can share this to your friends and people who want to learn how to trade.
Happy trading!