A market GPS to keep your trades from being lost in the woods
Mike Vilhauer suddenly realized he was in serious trouble. He had wandered away from the shore of Sunset Lake to try and catch some fresh crickets for bait. Getting lost never entered his mind… until he realized he was. What had started as a casual day of fishing at a nearby lake quickly became an unplanned struggle for survival.
Without food and shelter, he knew he could not survive for long. For the next five days, Mike fought to survive in the wilderness of Alpine County in California’s back country. Drinking water out of puddles and becoming weaker by the day, his time was running out.
Fortunately, the authorities were notified that he was missing and began an intensive search. On the fifth day of his ordeal he was spotted by a search helicopter and rescued.
How Retail Traders Put Their Trades In Life & Death Situations Too
Do you ever feel like you are stranded in the wilderness when you are looking at a lost trade on your screen? It was supposed to be a safe in-and-out round-trip trade. Suddenly you realize your trade is lost in the forest of the market! You have no idea how to get out. Again! Sadly, the market doesn’t send out search parties to rescue your lost trades.
Why do most traders fail to have a rescue plan for their trades? Because planning entry and exit points for trades sounds overwhelming and intimidating. Fortunately, there are trend lines and simple moving averages that make planning entries and exits a snap.
What Are Trend Lines And Simple Moving Averages?
Trend lines are one of many technical indicators used by experienced traders. They are used to find price trends and then alert traders when the existing trend is violated.
The primary use of a trend line is to help traders avoid having profitable trades turn into losses. When the current price of an asset violates the trend, it tells traders to get out of the woods. Many traders will act on a signal from a trend line on its own.
A simple moving average takes the prices from a specified time period and plots the average of those prices. This produces a flowing line that shows the trailing price momentum of an asset.
This tool is generally believed to signal a change in the longer-term price trend of an asset when the price crosses over the moving average line. A lot of traders use this particular tool extensively. It can be used alone or in conjunction with other trading tools.
Just like a GPS can lead a hiker in or out of the woods, these tools can do the same for your trades.
How Do Trend Lines And SMAs Mark The Trail For Retail Traders?
Used alone, trend lines and simple moving averages are powerful tools. Either of them can be very helpful at identifying attractive order entry and exit points for traders.
Traders who use them in conjunction with each other create a truly powerful combination.
When using these tools in concert with each other, traders have several potential options available to them. You can use a crossover of the SMA to open a new position. You can then use a breach of the trend line to close it.
You can do the exact opposite of the previous example if you choose. You can use a breach of the trend line to open a new position. You can then use a crossover of the moving average to close the trade.
Using a simple moving average tool along with trend lines can help provide traders with excellent entry and exit points for trades when the price crosses the markers.
Those looking for a powerful approach with an extra margin of safety have a third option available. They can open trades on the crossover of the SMA combined with a breach of the previous trend line. They can use the reverse of these price actions as a signal to close the trade.
Regardless of how you choose to apply them, they become the GPS that will get your trades out of the woods safely.
How Do You Salvage The Trip If You Make A Wrong Turn?
There is always going to be a risk that the market will give false signals. Lots of retail traders struggle with knowing when to exit a trade that is moving against them.
Using tools like trend lines and simple moving averages can actually eliminate anxiety over exiting a trade. You simply let the flow of the market determine your exit point when the price violates your marker.
No anxiety, no fear. The price crosses your marker and your market GPS leads you out of the trade.
Your Trading Account Now Has A Plan Lost Traders Don’t
You now have a market GPS to help you get in and out of your trades. This allows you to avoid looking at your screen and wondering: “How did I get here?”
A well-planned route is critical to your success. If you don’t know your road to success, you will not know if your trade wanders off the path along the way. Always watch your progress carefully and cancel the trip quickly if the plan takes a wrong turn.
Start planning your trades the way you would plan a safe hike. Your trades will no longer get lost in the woods of the market. And, you will always know how to get them out when the time comes.
No doubt hiking through the woods of the market is about to become your favorite new pastime.