Trading techniques can vary from trader to trader, but one thing that all traders can be certain of is that all financial markets form identifiable patterns that drive the price up, down or sideways. All traders should develop a technique of trading rather than chasing every big move up or down. The secret to developing your own technique is to identify what you understand and are comfortable with trading. New traders find it hard to refrain from participating in every opportunity that the market presents, because sometimes the fear of missing out super-cedes the basic fact that the trader should only trade the patterns they understand.

Trading technique is mastered by what you will not do as opposed to what you will do. Understanding what not to trade clarifies what patterns should be traded. Developing a technique takes time and persistence and after a strategy has been built the trader should never take trades outside of his or her understanding until the new pattern has proven that it can work consistently. There are three essential stages in developing a trading technique.

First, traders should begin with the patterns that they understand. If the trader is brand new to the market we encourage the trader to spend time watching the market. Look for key reversals or major moves up or down.

Second, traders should look for the candles that are around the reversal or break out candle to see how these other candles have influenced the ignition, continuation or reversal of the pattern. Over time the trader will begin to realize that the same or similar candles appear often next to the break out or reversal move.

Third, all patterns should be tested on a simulated (paper money) account. We recommend that all techniques be tested on a simulated account for a minimum of 30 days, with 90 days being the optimal testing period.

In summary, here are eight steps every trader should follow to develop a consistently-profitable trading strategy.

  1. Trade what you understand and are comfortable with.

  2. Don’t have a fear of missing out. (This will keep you from buying at the top or selling at the bottom.)

  3. Knowing what “not to do” clarifies what actions should be taken.

  4. New patterns should be watched over time to see if they are consistently profitable before being included it as part of a trading strategy.

  5. Spend time watching the market, look for key ignition, continuation and reversal patterns

  6. Identify what candles appeared before the move in the market.

  7. Print out or highlight these key patterns to study after the market closes.

  8. Test patterns on a simulation account.