Justin Freeman

The ‘upside gap three methods’ is a bearish candlestick pattern signaling a reversal in market trend and indicating that future price action will be to the downside. The ‘downside gap three methods’ is again a candlestick pattern, with similar but opposite characteristics, which signifies a market reversal to the upside. The ‘upside gap’ is characterized by the following candlestick pattern: Upward market trend: Candle 1 is bullish, has a long body, Candle 2 is bullish, has a long body, and, Tails of candle 1 and candle 2 do not overlap. Candle 3 is bearish. Open price is within body of Candle 1 and closing price is within the body of candle 2. The ‘downside gap three methods’ has the same pattern but in reverse: What are the candles telling you? In both cases the trend has noticeable strength. The fact that the tails do not overlap show price is heading in one direction and one direction only. The relatively long bodies suggest that as well as being certain of direction, the market is looking to get there as quickly as possible. The reversal comes from the market overshooting. Once the balance between buyers and sellers is redressed the reversal gains strength as it cuts into stop losses put in place by those riding the trend associated with the first two candles. The gap between candle 1 and candle 2 is a resistance/support level. Technical analysts refer a lot to gaps and how price action will sometimes retrace to ensure they are ‘filled’. The important aspect of this pattern is that the gap is filled and then broken through. Once past this resistance/support there is little to stop price continuing in the new direction and so the trend reversal builds strength. Thinking about the psychology behind the situation explains why the pattern occurs relatively infrequently. Candle 1 and candle 2 demonstrate a strong trend which not only fades away but is proven to be pretty weak. If market participants really had such little conviction on price levels one would have expected sideways price movement. As with all technical analysis traders would do well to monitor other signals (such as market volumes) rather than price action only.

A Doji is a type of Candlestick pattern. It reflects how the price of an asset changed during a particular period. Star
A Doji Star is characterized by having a small upward and downward shadow. The horizontal bars of a Candlestick represent the opening and closing prices of any given market instrument. In the case of a Doji the two prices are virtually the same and therefore there is no ‘body’ to the candle. The vertical lines represent the range of price action during the period. The highest point of the upper shadow reflects that period’s trading high and the lowest part of the lower shadow reflects the low of the time period. Short shadows denote a price action to have been within a small range, longer shadows denote a greater price range. Meaning and Interpretation
A Doji signifies that a market is not clearly trending. Buying and selling throughout the time period resulted in no material change to price levels. This equilibrium may be a common occurrence in a sideways or quiet market but is seen to be more significant should it occur after a period of market Momentum. A Doji that comes after a noticeable trend can be seen as a sign that there is soon to be a break to the current trend or even a reversal. Traders that were in the Momentum trade might look to take profits. Some might decide to build a position into the reversal, or at least consider that the market is for now not giving a clear indication of direction. Long Legged
A Long Legged Doji has upper and lower shadows that demonstrate the price range over the period was relatively large. That can be interpreted as illustrating there is a great amount of indecision in the market. Both bears and bulls have failed to drive the market to close at a price away from the market opening. The length of the shadows is taken to illustrate the extent to which they tried to make that happen. Gravestone
In this instance the opening and closing price are both at the low of the time period. It’s commonly taken to be a bearish signal. Dragonfly
In this instance the opening and closing price are both at the high of the time period. It’s commonly taken to be a bullish signal. Trading Dojis
Dojis are one indicator among many. Basing a trading strategy solely off them is probably best tested in a Demo account. Many other signals, such as traded volumes and the Stochastic Oscillator can be incorporated into your decision making process. It’s also important to consider what time frame you are analyzing. A Doji that forms over the period of one week is the result of a greater amount of market activity than one formed over a 10 minute period. The former Doji is therefore held to be an indication of widespread market uncertainty. The market data and diagnostic tools offered by Broker Platforms are a great free resource. Even if you don’t go on to develop a trading strategy that is based on Dojis it is important to understand that what they reflect happened over a particular period and what they are telling you about the markets.

an advance Block is a Candlestick pattern that’s typically interpreted as a bearish reversal pattern. It’s made up of three candlesticks and whilst having a high frequency of occurrence is not particularly reliable, that is, the bearish reversal does not always happen. The Advance Block pattern is relatively common and is made up of three candlesticks. When you are identifying the pattern, the characteristics of the three candles are more important than the previous market action. In the above diagram the Advance Block is preceded by a downward market trend. It can, however, occur as part of an upward trending market. The key features to look for are: The three white candles have progressively shorter ‘real’ bodies; Each of the white candles has a higher close; The upper tails of the candles become longer in each subsequent time interval; The bottom level of the ‘real’ body of each candle lies within the real body of the previous candle. As mentioned, the Advance Block occurs relatively frequently but is relatively unreliable. The high frequency is explained by the fact that it can be preceded by both rising and falling markets whereas some candle sticks occur in conjunction with just one of these two trends. Extending that thinking it could therefore be worth analyzing the assets you are trading and establishing if the Advance Block success rate is improved when markets are heading in a particular direction. Another, possible feature to consider is the length of the upper tails of the candles. Established thinking is that the higher the tail on the last candle the stronger the signal. Again, after research you will be able to confirm if the instruments you are trading do (or do not) verify this. Confirmation of Trend Reversal to the down side
  Confirmation of a break to the down side is given when price moves lower than the mid-point of the real body of the first of the three candles. The nature of this price move being another indicator of the strength of the reversal. Given that the three candles are effectively representing bulls that are running out of steam then any strong bearish thrust should be considered significant. If you do enter into a short position, standard positioning of stop-losses is just above the upper tail of the third candle. Any break to price levels higher than this tail is a sign that the Advance Block signal was incorrect. Advance Block patterns will generally be found in markets where there are a lot of short-term trend reversals. Understanding what market conditions they are illustrating is potentially more important than using them as signals to risk capital on a trade. Basing a day-trading trading strategy solely off anyone pattern is a good way to lose money and doing so with the Advance Block would be particularly brave or foolish. Your trading strategy should incorporate many other signals and even then trade management during the life of the trade will be a major determinant of long-term success or failure. One other suggestion, particularly if you are trading something for the first time, or are completely new to trading in general, is to remember the benefits of testing ideas using a demo account.

Fading is a form of trading which aims to put on short-term positions and take profits after small price changes. It is similar to Scalping but looks to make profits from trading the price movements that are in the opposite direction to the general price movement. How
Trading a Fading strategy involves buying and selling when price action temporarily reverses to go against the general market direction. Even if a particular instrument looks to be having an ‘up’ day, there will be opportunities to sell short and catch short-term price movements to the downside. The reverse would apply in a falling market where price is supported at various levels and for a short period when buyers outnumber sellers. It takes advantage of the fact that markets don’t tend to move in a straight line. Fading can be applied to news events that are stock specific (company announcements) or more general such as the release of economic data. Any significant market move that follows a news release might be seen as an over-reaction, particularly if price action triggers a large number of stop losses that traders had set at a certain level. Hitting stop losses can exacerbate the price move until it is considered to have over-shot. Trading a Fading strategy implies there is now an opportunity to make profits out of the process where price realigns itself to where fundamental analysis suggests it really should be. In the chart below the long-term trend is upwards, but there are still opportunities to make profits from short-term price action to the downside. IG Index 20181113 Risks
As with Scalping, the usual Risk Factors apply, especially Gapping Risk. Getting ‘stuck’ in a Fade Trade can be costly. Having a position that is against the general price direction means you might be in the unhappy position of trying to minimize losses rather than maximize gains. For that reason, the setting of stop losses at appropriate levels is particularly important. Where
As with Scalping trades, You’ll want to use a Trading Platform that has reliable, high-speed connectivity to your own place of trading. You don’t want to suffer periods of being unable to connect to your broker to execute. It’s, therefore, sound advice to try Fading using a broker’s Demo account and monitor the reliability and speed of the connection. Fading is a Contrarian style of trading so practicing with a Demo account will also allow you to analyze if it is a good personal fit for you. Again, it might even be that one platform is better for you for Fading one instrument and another better for Fading something else, so research the pros and cons of the respective broker platforms. What
Fading can be applied to any instrument or market with the right kind of trading volumes and price volatility. As you are taking a contrarian approach, it can be beneficial to trade an instrument that has some, but not too much price volatility as spikes in the general direction of traffic might hit your stop losses. It is also important to trade instruments that have tight bid/offer Spreads, so research how they compare across brokers that you can access. Bulls and Bears
Upward and downward market moves tend to be different in nature. Upward markets are associated with more gradual price movement; it’s perceived that this is what they naturally do. Downward markets tend to be more dramatic and sell-offs can look like prices are falling off the edge of a cliff. The different type of market momentum means that Fading in Bullish and Bearish markets is quite a different experience. Particular risks are involved with Fading in a bearish market. Hence the adage warning it’s not a good idea to try and catch a falling knife. Why
Fading is not for the risk-averse. It’s a contrarian trading strategy and is fast-paced. Despite the risks involved the distinctive approach does offer clear guidelines regarding risk management and it appeals to a lot of traders.

Scalping is a form of trading which aims to put on short-term positions and take profits after small price changes. How
Scalpers look to trade intra-day momentum patterns, trading with the direction of the market and applying tight stop losses to positions. The ratio between the target price and stop loss will be lower than for a lot of other trading strategies. If the risk-return ratio on each Scalping trade is 1:1 then achieving profits for the day will be a result of picking more winning trades than losing ones. Other strategies with greater reward to risk ratios, rely on you picking a smaller percentage of winning trades but these go on to make relatively large profits. Trading volumes will fluctuate with market conditions but trading over one hundred times a day would be typical. It can also be the case that the majority, or even all, trades occur within 30-60 minutes of the market opening to take advantage of peak trade volumes at that time of day. Risks
All the usual Risk Factors apply, especially Gapping Risk but some risks are particularly relevant to the day-to-day management of Scalping trades. As the intention of Scalping is to enter and exit a trade within a certain time frame trigger points indicating trading opportunities need to factor in times and markets where a trader might get stuck. For example, entering into a scalping trade that may require up to ten minutes to reach target price is an issue if the instrument traded is an equity and the market is closing in five minutes time. Equally, market volatility is not constant and is particularly subject to dropping off in the run-up to major news announcements. Accordingly, traders using a Scalping trading strategy will aim to be flat of any positions around news and market data releases. Where
You’ll want to use a Trading Platform that has reliable, high-speed connectivity to your place of trading. With the aim of the game being to pick more winners than losers, you don’t want to suffer periods of being unable to connect to your broker to execute. Its sound advice to try Scalping using a broker’s Demo account and to monitor the reliability and speed of your connection. It might even be that one platform is better for you for trading Forex and another better for trading Commodities. Also check the bid/offer Spread across brokers as a tight spread is crucial in Scalping trades. What
Scalping can be applied to any instrument or market that has the right trading volumes and price volatility. Bulls and Bears
Upward and downward market moves tend to be different in kind. Upward markets are associated with more gradual price movement; the commonly held perception is that this is what they naturally do. Downward markets tend to be more dramatic, sell-offs can look like price is falling off the edge of a cliff. The different type of market momentum means that Scalping in Bullish and Bearish markets is quite a different experience. Why
Scalping is fast paced, and despite Gapping Risk being an issue the perceived comfort from tight stop losses and high trade turnover means it appeals to a lot of traders.

Momentum refers to the underlying direction of price action. Identifying Momentum and effectively trading it is a crucial element of profitable trading. IG Index 20181113 The chart for USD/JPY Mini shows that throughout 18 days the general price momentum was upwards. The price did move within a range indicated by the trend lines, and there were temporary reversals, but the overall move was from 112.1 to 114.0 If you had opened a long position at any price on 26th October and held the position until 13th November, you’d have made a profit. Momentum can, of course, apply to intra-day trading but as in the example above it is typically associated with a longer period of days or maybe weeks. Trade management might involve a risk-return target starting in the region of 1:3 with stop losses further out of the money and profitable positions allowed to run. While some Momentum trading strategies advocate additional trading to increase the size of profitable positions an alternative is to take profits over time and introduce trailing stop losses. Trade management that involves scaling out of a trade means any trade that is at one point profitable can be structured to at least break even. Trading Momentum
Trading Momentum trading can be made challenging because of the different time horizons that apply to markets. Consider a situation where Hourly Momentum is bullish but Weekly Momentum is bearish. For a few hours during a particular day going long might be profitable as you ride the shorter-term momentum that is a reversal of the longer-term downward movement. If you do hold that position for longer than a few hours you might, however, see your once profitable position become part of the Weekly momentum pattern; for the price to fall away and your position to close out at break even or even at a loss. Trading using a Fading strategy is based around trading the shorter term move which is in the opposite direction to the longer-term trend. Your Momentum trading strategy should factor in what duration Momentum you are trading (hourly, daily, weekly, etc.) and the time target time for holding a particular position adjusted accordingly. Quantifying Momentum
Trade entry points and capital allocated to any trade will be a function of the strength of the Momentum. Fortunately, there are indicators that allow the strength of the price action move to be graded: You might want to look for the percentage move in price before there is a real pullback. A more significant move would be because of stronger underlying buying or selling. The greater the increase in trading volumes the stronger the Momentum. Trading volumes which are x2, x3 or more than the average would be significant. Breaking levels. Look for price action breaking through significant price levels such as Pivots and previous Highs/Lows. News events that act as a catalyst are also signs that a significant change in price action is taking place. Indicators such as RSI Index, Bollinger bands and Moving Averages are all used to grade the strength of Momentum. Momentum trading requires specific market conditions which might not always be present. ‘Forcing’ your way into a trade that wasn’t there to be done can be costly as stop losses are usually some way behind entry price levels.

The only generic advice is that personal development should be your aim regardless of your track record or the extent of your experience. Whether a newbie or an old hand, it’s essential to constantly monitor ‘what works’ and consider how you will identify and react to the moment when ‘what works’ ceases to do so. Preparation and testing
If you’re opening a new account with a broker or looking to test a new strategy, then remember to start small and stay small for as long as you can. If you do miss an opportunity because you were late in scaling up your trading size, then take comfort from the fact that scaling up before testing is complete can lead to accounts being completely wiped out. Trade execution
Your strategy should detail trade entry and exit points. Returns can be finessed, and discipline maintained through the use of Limit Orders(link to What is a Limit Order?).Stick to the strategy and when you see that a trade is going against you, prioritize minimizing the loss. Everyone likes to talk about increasing profits but the processes you use to minimize losses are equally important. Review
Unfortunately, this requires more than just recapping one of your successful trades and slapping yourself on the back about the amount of profit you made. Whilst you do need to study the winners as well as the losers keep an open mind to learn from both scenarios. Reviewing can also be really useful because you might use a new tool or notice a new metric that can then help you with future trading. Use the tools availableon your platform to analyse your performance. The below is taken from a Markets.com Demo account: Specific to you
If you are trading independently then you need to be realistic about what you can’t do. Be aware of when you will be able to devote your time to research or trading. Appreciate that successful time management is going to be a big influence on your P&L. Are there times of day when you just can’t access the markets and how does this influence your strategy choice? Trading can take a lot out of you and clash with a day job or social commitments. Devoting time to trading involves some kind of opportunity cost that you might want to be mindful of.What is your cognitive bias? How do you manage commitment bias? Summary
You’ll hopefully have established that the question of “How to be a better Day Trader?” is as useful a question as it is an interesting one. There are lists of hints and tips like the ones below which may save you money (or not) but tailoring the question to your own situation and trading style should be a priority. Trade in expectation, not hope. If you have 10 great trading ideas, then consider just using the best three. Are you certain that the other seven are as likely to be profitable as you’d hope they are? Monitor and update your Risk Measurement and Risk Management procedures. Don’t trade too much. Don’t double down. Don’t move stop losses away from the price. Remember that markets are not rational.   Paradigm Shift
Even successful traders need to worry. Paradigm shift is a fundamental change in approach or underlying assumptions. This is the moment when ‘what works’no longer does. It’s unlikely, more likely impossible, that you’ve completely covered every aspect of what is required to be a good trader; but even if you have, the risk of a paradigm shift should still be keeping you awake at night.

The only generic advice is that personal development should be your aim regardless of your track record or the extent of your experience. Whether a newbie or an old hand, it’s essential to constantly monitor ‘what works’ and consider how you will identify and react to the moment when ‘what works’ ceases to do so. Preparation and testing
If you’re opening a new account with a broker or looking to test a new strategy, then remember to start small and stay small for as long as you can. If you do miss an opportunity because you were late in scaling up your trading size, then take comfort from the fact that scaling up before testing is complete can lead to accounts being completely wiped out. Trade execution
Your strategy should detail trade entry and exit points. Returns can be finessed, and discipline maintained through the use of Limit Orders(link to What is a Limit Order?).Stick to the strategy and when you see that a trade is going against you, prioritize minimizing the loss. Everyone likes to talk about increasing profits but the processes you use to minimize losses are equally important. Review
Unfortunately, this requires more than just recapping one of your successful trades and slapping yourself on the back about the amount of profit you made. Whilst you do need to study the winners as well as the losers keep an open mind to learn from both scenarios. Reviewing can also be really useful because you might use a new tool or notice a new metric that can then help you with future trading. Use the tools availableon your platform to analyse your performance. The below is taken from a Markets.com Demo account: Specific to you
If you are trading independently then you need to be realistic about what you can’t do. Be aware of when you will be able to devote your time to research or trading. Appreciate that successful time management is going to be a big influence on your P&L. Are there times of day when you just can’t access the markets and how does this influence your strategy choice? Trading can take a lot out of you and clash with a day job or social commitments. Devoting time to trading involves some kind of opportunity cost that you might want to be mindful of.What is your cognitive bias? How do you manage commitment bias? Summary
You’ll hopefully have established that the question of “How to be a better Day Trader?” is as useful a question as it is an interesting one. There are lists of hints and tips like the ones below which may save you money (or not) but tailoring the question to your own situation and trading style should be a priority. Trade in expectation, not hope. If you have 10 great trading ideas, then consider just using the best three. Are you certain that the other seven are as likely to be profitable as you’d hope they are? Monitor and update your Risk Measurement and Risk Management procedures. Don’t trade too much. Don’t double down. Don’t move stop losses away from the price. Remember that markets are not rational.   Paradigm Shift
Even successful traders need to worry. Paradigm shift is a fundamental change in approach or underlying assumptions. This is the moment when ‘what works’no longer does. It’s unlikely, more likely impossible, that you’ve completely covered every aspect of what is required to be a good trader; but even if you have, the risk of a paradigm shift should still be keeping you awake at night.

When judging trade entry points for day trades the key variables to consider are: price and time. Price is paramount. If you made a profit, then you picked a good entry point. It might not have been the optimal price level; you might not have built up your position to the target size and your trade management might leave a lot to be desired. But selecting an entry point is challenging so any profitable trading deserves credit. Post-trade analysis can help you learn and improve. Time provides an extra dimension to your day trading activity. As well as considering price levels you need to consider the time of execution and the market conditions you will be trading in. The first 30 minutes or so after a market opens are associated with significant trading volumes as market participants take on positions. Trading at the open means investors have the rest of the trading day for strategies (such as OBR) to come to fruition and profits to be made. The run up to market close at the end of the trading day does see a similar spike in volumes but at that time of day the majority of people will be trying to close out positions rather than put on new ones. Role of trading strategies Different Trading Strategies generate their own ‘signals’ to buy and sell. The signals are specific to each strategy so one following principles of ‘Momentum Trading’ will for example generate different signals to a strategy based on ‘Scalping’. Post-trade analysis will help you quantify the degree of success. Question the entry points of both profitable and loss-making trades. One of the risks associated with putting a trade on is ‘getting stuck’ in a position and having to trade out of it at a loss. Liquidity
Liquidity risk is a major concern. Illiquid markets are associated with large bid/offer spreads. It can be daunting to execute a trade and see your P&L immediately in the red solely on the basis of the spread. Timing
Does a trade have enough time to reach its price targets prior to market close? Might trade volumes and therefore price volatility drop away as the day goes on? Slippage
This occurs when an order to execute is sent at one price but by the time the trade is completed the price has moved away from what was originally reported. Seasonality
Levels of market activity can drop off significantly at certain times of the year. Summer and national holidays are characterized by low trading volumes and ‘sideways markets’ which can be challenging for Day Traders. Events
The release of key economic data reports can impact the markets and ‘override’ the initial signals that initiated your trade. More importantly, announcements are often characterized by market prices that whip-saw momentarily and trigger stop losses even though moments later prices stabilize at the same levels they were at prior to the news release. When putting on a day trade you need to be expecting, not hoping, that you can enter and exit the trade at price levels that make a profit. This involves getting the direction of trade right but also being aware of the obstacles that might get in the way of carrying out your strategy.

To be a profitable Day Trader you will need to have a clear trading strategy. Your strategy will detail the conditions required for putting on and closing out a trade and also the manner in which that trade execution is conducted. Getting the direction of the markets right is one thing, finessing your trade execution to maximize profits (or minimize losses) is another. Preparation
Pre-trade is the time when some of the most difficult questions arise: Has sufficient research and analysis been carried out to make your trading strategy a success? Is the current market situation one that the strategy was designed to work in? Are all or just some of the trigger signals indicating execution appropriate? How successful has your trade execution been? Have the risk factors associated with the strategy changed?   The list of questions is extensive, and only a few vital questions are included above. Anyway, some of the most important questions will be personal to you. Try to understand your previous trading successes and failures and use them to frame a question to yourself about whether now would be a good time to trade. Position size
Choose what size of position you would like to take. Then reduce it, then break it into smaller pieces and trade them in installments and ‘work your way into the trade.’ Running lower levels of exposure will lead you to a situation where you are managing a trade competently rather than being influenced by your emotions. Instrument
Is a particular instrument the best for the strategy? If you’re feeling the markets are due a sell off a short position in an Equity Index CFD would give you exposure to that price move, but you may be willing to take on a single stock risk and go short on a particular company based on your detailed analysis of it? Platform
Different broker platforms have different strengths and weaknesses. They range from the quality of pre-trade diagnostic tools through to terms and conditions of financing. Which platform is best for which trade? Broker Comparison tool. VWAP (volume-weighted average price)
Understanding and using VWAP can help build positions and close out positions at better price levels. VWAP is the ratio of the value traded to the total amount that is traded over a particular period. It is a measure of the average price at which a stock is traded. If you are looking to enter into a long position throughout a day, then you’d be ‘buying the dips.’ The principles of VWAP may continue through the life of the trade with positions being adjusted to take advantage of short-term market moves. Positions may be increased or reduced to take profits or to manage risk levels. Time Horizon
Know your product and the market hours that it trades and your investment time horizon. Equity CFDs can only be traded during that instrument’s market hours, and other products like Forex and Index CFDs will have wider spreads at certain times of the day. Closing out trades
Stick with your strategy. If the trade is profitable, do allow stop losses to be adjusted in your favor to ensure some profits (or at least break even) are secured. Don’t move stop losses away from the market price. Don’t double down. Post-trade analysis
Analyze your performance regarding trade execution. If you feel you are close to making optimal returns discipline yourself to manage the emotional aspects of leaving some money on the table.