Trading Principles
Last updated
Last updated
In this Section, We will learn about trading principles, which, if you follow, will help you survive the market.
Top-down analysis is the procedure of first analyzing price on a weekly and working your way down through the time frames to 'time' an entry. By doing this every time we are on the charts, we can ensure that we aren't forgetting the bigger picture and are not getting caught up in the "Intraday" (lower time frame) price action. Top-down analysis is important to factor in when analyzing these patterns.
The Highest Time Frame will be used for Direction Bias
Trades will be managed by the highest or middle time frame
The shortest time frame will be used for entries and signal potential clues
The Highest probability trades are made in the Higher time frame direction
All trades are framed over key Support and Resistance.
Position Trades (Month or More) - Monthly Time Frame, Weekly Time Frame, and Daily Time Frame
Swing Trades (Week or More) - Daily Time Frame, 4-Hour Time Frame, and 1-Hour Time Frame §
Short-Term Trades (One Day or More) - 4 Hour Time Frame, 1 Hour Time Frame, and 15 Minutes Time Frame
Day Trades and Scalps - 1 Hour Time Frame, 15 Minutes Time Frame, and 5 minutes Time Frame.
An entry type refers to how you decide to enter a position in the market. As our student, you have two options once you have outlined a potential position and point of entry.
This decision is entering as a Risk Entry or Reduced Risk Entry.
There are two entry options when entering a trade. As a general rule of thumb, risk entries come at more risk to a potential loss but offer more reward in return.
Reduced Risk entries allow you to wait for further confirmation of trade direction before entering a trade. * Allows you to enter with confirmation at the sacrifice of some risk to reward potential.
As you progress through our course, you will soon realize that risk entries generally aren't that risky. You will develop a skill set and understanding of the market that allows you to capitalize on massive RR trades,
The purpose of Multi-Touch is to help identify the current pattern and if a pattern may be complete. It also aids in helping with the probable and the possible outcomes. When using Multi-Touch, it can be highly effective when looking at both reversal and continuation patterns. The highest probability of touches is a three-touch structure. This can be applied to both HTFS and LTFs.
Muti-Touch essentially gives us a clear picture of what a completed pattern looks like and creates a systematic approach we can follow regularly.
Patterns repeat themselves over many years of data, and Multi: -Touch compliments that.
Understanding this psychology is one of the most important things you can know as a trader; essentially, we want to be on the right side of the market. Once we realize that, for the heavy impulses to come into the market, we will need traders caught on the wrong side, our trading will become more profitable. This is where you'll see traders buying at the highs and selling at the lows.
This means traders may see momentum moving to the upside or downside for a long time without being involved in the markets. This typically creates the fear of missing out, So they start buying, hoping the price will keep falling.
Mass psychology becomes very clear when you combine patterns within your trading, which happens repeatedly over many years of data.
This concept will be the most effective thought process to keep you in a neutral state of mind, and as we work on becoming profitable, the best way is to detach as much emotional bias from the market as possible.
When we realize that we have both probable and possible outcomes, it helps us to remove that perfectionist mindset that holds a lot of traders back.
What the probable means is the most likely outcome to occur with generally the highest probability attached to it.
The possibility is understanding that this can also happen in the markets. It is still a high criterion of setup, just a lesser likely outcome depending on the structure you are trading.
Often as traders, we become very emotional when it comes to news. We let news dictate a huge part of our trading which can become very dangerous when striving for consistency. It's not that we ignore the news but more so that we are aware of the major news only.
Over many years of data, using the Falcon Strategy, you'll find that news can often be a catalyst for breaking out a pattern that we may be looking at on both the larger and smaller scale.
After all, the news is always there, but it really only creates a bit of volatility and doesn't change the direction.
