Edge, Expectancy, and Execution
So far, we have discussed trend, momentum, and volatility as the foundation price principles that define market movement. We then examined specific trading tools such as candlesticks, price patterns, and Fibonacci retracements to build upon the leading price principles of trend, momentum, and volatility. Moving averages assist in trend identification; unbound momentum oscillators reveal the momentum structure of the market as a confirmation of a price move or a nonconfirmation through divergences. For volatility, we assess the degree of price range compression or expansion directly on the charts, or through indicators such as Bollinger Bands, the ADX Indicator, or hand-drawn trendlines.
All of the information of a chart fits within the life cycle of a price move from accumulation through realization on to final distribution, and we can apply the appropriate strategy depending on our assessment of price's location in the broader cycle. No matter what timeframe you're using, understanding these principles and how to use the right chart tool at the right time will help you to locate the best opportunities for low-risk trades.
However, being able to recognize opportunities alone won't make you successful. You must have confidence to act on those opportunities and to focus on the big picture. Many traders fail to achieve long-term profits due to deficiencies in execution, risk management, money management, or emotional management.
Once you ...