Trading Flowchart



9/30/20220 min read

This educational idea is a Trading Flowchart.

It starts with simply explaining the main steps to make before trading and opening positions and how to identify our situation to gain better results.

Before we start to trade, we should identify the trend. What is a trend?

A trend is a direction in which an asset's price changes over time.

Financial market traders identify market trends with the help of technical analysis . Technical analysis is a framework that identifies market trends as predictable price trends within a market (when the price reaches a support or resistance level ).

Since future prices are unknown at any given time, a trend can only be determined in hindsight (vs. forward). However, this shortcoming does not stop people from predicting future trends.

The terms "bull market" and "bear market" represent increasing (rising) and decreasing (descending) market trends, respectively.

Peak and bottom:

In the price chart, the bottoms are the points where the demand pressure exceeds the supply, and the prices start to rise after a period of decline. On the contrary, the peaks are the points where the supply pressure exceeds the demand, and the prices start to decrease after an increase.

There are three types of trends in general:

Uptrend (Rising trend)

Sideways trend

Downtrend (Declining trend)

Uptrend (Rising trend):

When the price of a symbol or asset increases generally, the price trend is said to be bullish , bullish , bullish , or bearish . An increasing trend does not mean that the prices always have an upward movement; the price may sometimes go up and sometimes go down, but the result of this fluctuation is the price increase. The rising trend in the price chart can be recognized by looking at rising floors (when the new price floor is higher than the previous floor).

Sideways trend:

A lateral trend line is formed when the market remains stable, i.e., the price does not reach the highest or lowest price point. Many professional traders do not pay much attention to lateral trends. However, lateral trends play an essential role in scalping trades.

Downtrend (Declining trend):

When the price of a symbol or asset declines generally, its price trend is bearish , bearish , bearish , or bearish . A downward trend, like an upward trend, does not mean that the prices will always go down, but it means that the price may sometimes go down and sometimes go up, but the result of this fluctuation is a price reduction. A downward trend in the price chart can be recognized by looking at falling peaks (when the new price peak is lower than the previous peak).

One way an analyst can see a trend line is by plotting trend lines . A trend line is a straight line that connects two or more price points. This line continues on the chart as a support or resistance line.

An uptrend line is a straight line drawn to the right and up, connecting two or more low points. The second low point in drawing the upward trend line must be higher than the starting point. Uptrend lines support and show that even as prices rise, demand is more significant than supply. As long as prices remain above the trendline, the uptrend is considered unchanged. A break below the uptrend line indicates that a change in our trend may occur.

A downtrend line is a straight line drawn to the right and down that connects two or more high points. The height of the second point must be lower than the first point so that the line has a downward slope. Downtrend lines act as resistance and show that supply is greater than demand even as the price declines. As long as prices remain below the trendline, the downtrend is considered intact. A break above the downtrend line indicates that a change in trend may occur.

Familiarity with trend analysis

Trend line analysis is a technique used in technical analysis . Trend analysis seeks to predict the price of a currency in more distant intervals with the help of data obtained by trends. Trend analysis uses historical data like price movement and trading volume to predict long-term trends in market sentiment. Trend analysis tries to predict a trend, such as an uptrend in the market, and follow that trend until the data indicates a trend reversal.

Trend line analysis is essential because trends' movement ultimately leads to investors' profits. Examining a trend with the help of historical data of the desired currency predicts the future price of that currency for traders.

Trading strategies with trend lines

Now that we understand the meaning of trend lines and their types let's look at the strategies many traders use to identify trends and learn when it's the best time to open positions.

To try to make better predictions on how the market will behave, so we can trade safer, we can use indicators.

What are indicators?

In technical analysis , a technical indicator is a mathematical calculator based on price history, volume , or (in the case of a futures contract) options contract information related to the timing of the contracts, which aims to predict financial market trends. Technical indicators are the central part of technical analysis and are usually designed as a chart pattern to predict market trends. Indicators are generally placed on price chart data to show where the price is headed or whether the price is in an oversold or overbought state.

Many technical indicators have been developed, and new types have been invented by traders to obtain better results. New indicators are often simulated on historical price and volume data to see how effective they have been in predicting future events.

Here are a few examples of those indicators:

The Relative Strength Index ( RSI ):

The Relative Strength Index ( RSI ) is a strategy that helps identify currency price movements and buy and sell signals. RSI determines the positive and negative trend of the stock price by observing the average profit and loss in a certain period. The RSI is a percentage ranging from zero to 100 on a scale.

Here is a complete educational idea of how RSI works:

Fibonacci Retracement:

Fibonacci Retracement is a method of using the Fibonacci tool in the chart of a financial asset, which is used to determine the amount of price correction and find possible return points ( support and resistance ) of that asset, starting from the endpoint to the particular initial.

Here is a complete educational idea of how Fibonacci Retracement works:

There are many more indicators we can use to get a better understanding of the market. For example, The Elliot Waves, Ichimuko Clouds, MACD , and The Bollinger Bands:

I hope this flowchart gives you a better perspective on how to trade safer.

Have you ever used this flowchart accurately? What do you think the pros and cons are?

Do you think I missed something?

Let us know your ideas.

Good luck.