In the last post in this series, we introduced intermarket relationships. We found that...
- the correlation between bond and share prices is not always negative,
- the US dollar in the form of the USD index in most cases the oil price follows inversely,
- that the copper price offers a good indication for stock markets.
These findings can not only help to better understand markets per se, but also in their achievement help with their own edge. Let's take a look at the markets this week and present our last tip in this series.
Learn to rethink in trading
What is meant by rethinking in trading is that our risk awareness lets us in most of the time the wrong belief that the risk is higher if courses have recently dropped and vice versa. This is also the reason why most don't dare to start at the low or - in the case of put options - at the high.
But why an increased risk awareness pays off can be seen in the following example. The DAX Future turned dynamically upwards when it reached the long-term upward trend line at 9,300 pts. Let us assume that we as traders bought the DAX from this support and did not wait for one, two or three confirmations to come. In this case, the rebound on the trend line would have been very likely.
The advantage that results from this entry is generated by the dynamic rise. If you act with products such as CFDs or futures, there is the option of placing your stop very quickly at the break-even point; that is the entry price. So you completely eliminate the risk of a loss.
Since the increase was not sustainable, you would have been stopped when the DAX Future tested the low a second time. But that's not a bad thing, since this entry-level technique would not have led to any loss. With classic options, this technique has the advantage that you can be "in the money" very quickly with your option.
Of course, this technique doesn't always protect against loss. Because: If there is no dynamic increase and the price breaks through the support, this loss cannot be prevented. Experience has shown that the likelihood that a backlash will take place at such an important level is higher than the breakthrough.
The raised floor that has been formed indicates a reversal. This cannot be accepted 100 percent. However, if you had used the technique, you would have entered the second test of the low in time and with your option quickly "in the money".
Entry after a pull-back
Who However, if you want to wait for confirmation, you can still use the same entry-level technology. However, it does not have to start at the very bottom, but can find a cheap entry after a correction or pull-back.
The upper chart shows an example of how this could look. First a relevant resistance is reached. This must then be broken. Afterwards, you have to wait for a retest of the outbreak level (pull-back). If this takes place, the entry can be made. This technology secures the low price in an already established trend, which is additionally confirmed by a break-out at a relevant level.
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Conclusion - The entry technology reduces the risk of loss
With the entry-level technique mentioned above, not only can the risk be minimized, but a rethinking in trading can also be encouraged. The risk awareness is thus focused on the entrances and not on the course of the course, i.e. an existing trend. A certain edge and an advantage over other techniques can also be achieved with this.
With the broker IQ Option, traders have an established broker at their side and can use different entry-level techniques.