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Trading Phases and Processes

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Trading Phases and Processes

The purpose of this section is to practice what you have learned so far. You will see many more examples of DJ-30 charts later on. You accomplish the trading activity in three phases.

Phase 1: Preparation

This is mainly the preparation work for validation and confirmation of the trading-checklist. It consists of answering all questions of the trading-checklist in an objective manner. Then, you could place a limit order to open or close a position.

In this phase, you need to check the following technical points:
  1. To determine the market trends, you use the VIX as a leading indicator. The chart time span should be in line with your trading profile and timescale. The VIX MS and TSV indicators should give a timely signal to open a Long or Short position. As we already know, the VIX real-time volume data is unavailable for intra-day charts. Therefore, the TSV signal is not available. Consequently, we would have to rely on the real-time MS indicator alone.
  2. At the same time, for trading the NYSE or NASDAQ stocks, you would have to use DJ-30 or NDX--X (NASDAQ-100 Index) to forecast the market trends. The DJ-30 TSV and MS real-time signals are both available during the US market opening times. For the technology sector, we would have to use the NASDAQ to determine the trends. However, the NDX--X intra-day real-time volume data, like for the VIX, is not available. The QQQ is a so-called PowerShare, which closely mirrors the NDX--X index. Therefore, you can sometimes use it instead. All data for the QQQ are available during the US markets opening hours.
  3. Finally, if you wish to trade a stock, obviously you would have to check the stock trend as well.
The validation of the trading-checklist gives the final go-ahead signal for placing limit orders.

Phase 2: Close Monitoring of the Open Positions

This phase starts as soon as you have an open trading position. During this phase, your job consists of (1) closely monitor the market trends to ensure that the trend continues in favor of your position and (2) continuously adjust the price of Stop orders to newer support or resistance levels to secure the already accrued gains. This is a safety measure against potential sudden and unexpected market trend reversals.

Apart from that, you need to ensure that things are going in the right direction. Confirmation of the trend is done through the checklist of “Market trends versus Open Positions,” described in the book.

After all the right preparation, what should you do if the market suddenly reverses trend, the MPS answer is the Loss-Parking Strategy.

Phase 3: Reflection and Recording

This phase starts each time you close a position. Then you have to reflect and record what you did well, what went wrong and why? Please do not start preparing for any other trade before completing this phase.
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