There are some very interesting trades setting up in the markets right now, but they’re not where most traders are looking first. In fact, the most popular markets are the ones to avoid … for now.
For example, we've seen giant moves in the stock market and gold in response to the biggest health crisis we've had in a century.
Here’s the NASDAQ, which dropped 30% from the top to the bottom:
Since then, it’s rallied 70% over the last month and now it’s anybody's guess as to where it’s going from here. The path of least resistance is still higher– there’s a recent bullish key reversal, for example.
However, I'm wary of going long here because this market has already rallied 70% and a reversal could be right around the corner. I like to identify trades as they're coming out of the gate. I like trades where the wind is at my back in the form of an excellent risk/reward ratio.
I’m not so confident that’s the case in the NASDAQ due to the spirited rally we’ve seen already.
That’s why I’ll be showing you other trades with better risk/reward prospects. Trades like that are how I've made all kinds of money in the last month or so.
Hopefully, you’ve managed to do the same. If not, keep reading to learn more about how I select trades with the best chance of delivering large gains with minimum risk.
But before I do that, let’s use spot gold (XAUUSD) as another example of what NOT to trade. Gold’s the other hugely volatile market lately, and I’m not keen on trading it right now:
Gold is at the apex of a reverse triangle pattern. It could break out to the upside and it could also reverse from here. For now, I'm simply drawing a structure and waiting for price action to dictate where the market goes.
Gold had a recent bullish key reversal (as with NASDAQ) which suggests the market is going higher. But just like with the NASDAQ, I’m leery of getting in right at the top, especially at a level where there’s already established resistance at the $1,750 level.
The risk/reward just isn’t good here.
If you go long, you’re at risk of a large drop before gold turns around and rockets higher. If you go short, you could be caught by an unexpected breakout beyond resistance.
That means there’s a large margin of error here, which doesn’t make for a good trade even though gold is a “sexy market” with all the media headlines about the economic collapse, the health crisis, and so on.
Just look at the giant volatility recently! Recent price bars are showing literally $100 ranges each week.
Trading a market like this is like trying to catch a wave as it’s about to crash over your head. You might get a great surfing experience from that scenario, but you might get crushed right into the sand too.
I feel it’s much better to catch the wave BEFORE the energy and volatility have picked up. I want to catch the trading wave as it’s building. Not only is it less dangerous to hop aboard, I get to keep riding as the energy rises in my favor and then dismount as it sends me comfortably to the beach with a nice profit.
Now maybe that’s not an analogy that works for you, but I really want to emphasize that the best trades are the ones you identify when volatility is still low and when the trade is just getting started.
The best trades are when the price action is just starting to build some momentum from an emerging pattern.
Another key principle to keep in mind when picking the best risk/reward trades: focus on long term charts if you want to be a consistent and profitable trader over the long term. You simply can't make money by looking at a 5 minute, 15 minutes even a one hour charts because the randomness will always get you in the end.
With giant moves last week in Oil, Gold, and the Stock Market, all the attention is very much on the “sexy trades” at the moment.
But is this right? Are you missing out on better trades?
In this week’s report, I shared all.
I covered all the key currencies and commodities that I’m studying, highlighting some short-term and long-term opportunities.
There is also a bunch of teaching moments in this, based on what’s been happening and long-term chart patterns.
- Why my risk/reward qualification process has changed, and what I’m looking for right now to hunt down the big opportunities
- The “Apex Triangle” on Gold which usually signifies one thing, but why I’m hesitant to rush into this trade (my full explanation from 2.53)
- Why I prefer to get into low volatility markets, with a simple “catching a wave” metaphor to explain the key differences between making significant returns and ending up being wiped out
- Why the USDJPY is going to go lower based on this 45-year chart (detailed explanation of how you can get an edge when trading)
- The “Head & Shoulders” from 2015 that indicated where the USDJPY was going to go, and the two opportunities in this currency pair that are going to happen next (watch from 12.45)
- The currency pair that I’m predicting will reach all-time lows (and why I’m taking long-term positions on this trade) – trade revealed at 18:12
- The 15:1 opportunity on GBPAUD and what you need to know to be on the right-side of this big swing by holding long-positions over the next several months
- Plus much more
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