To put an elephant in the refrigerator, it only takes 3 steps, and trading is the same.
Introduction
First Step: Look at the Trend
Second Step: Find Key Levels Again
Third Step: Find Entry Signals
Enter the market, take profit, close the position, and leave. Isn't it simple? Let's explain in detail.
1. First, look at the trend
The state of a market can result in three outcomes: rising, sideways, or falling. What is a major market? Look at time frames above 4 hours, such as 4-hour, daily, or weekly charts (my personal habit is to look at 4-hour charts).
Buy on the rise; sell on the decline; do not trade in a sideways market.
If the current market is in a sideways state, there's no need to proceed further; just go about your business. If it's a one-sided bullish or bearish market, please continue to the second step.
2. Find Key Levels
Whether the market is rising or falling, it will jump up or down like a bouncing ball, level by level. What we need to do is enter at its take-off position and exit at the next landing point.
How to find precise stepping points becomes key, which is what we refer to as key levels (main support and resistance levels). If you want to learn how to accurately find the main support and resistance levels, you can look back at my previous articles.
The purpose of finding key levels is to identify which stage the current market is in: early, mid, or late; whether the target level meets your risk-reward ratio. We do not engage in losing trades; if the risk-reward ratio is less than or equal to 1:1 (losing only 1 unit if losing, and winning only 1 unit if winning), then just take a break. If it is greater than 1:1, such as 1:1.5 (losing only 1 unit, winning 1.5 units), then proceed to the third step.
3. Find Signals
Generally, if a market trend is detected on a large time frame, you should look for trading signals in a smaller time frame. Everyone has different strengths in trading strategies; even if you excel at everything, you cannot bring all of it to the battlefield. Therefore, mastering 1 or 2 precise strategies thoroughly is still effective.
Some are good at moving averages, some at trend lines, some at MACD, some at Bollinger Bands, some at RSI, some at KDJ, and some at naked candles, and that's all fine.
As long as you find a suitable entry signal, such as a bullish engulfing pattern, a pin bar, or a 2B breakout, you need to quickly formulate a trading strategy.
A complete trading strategy includes:
(1) Asset — What to trade;
(2) Position Size — How much to hold;
(3) Direction — Long or Short;
(4) Entry Point — At what price to trade;
(5) Stop Loss — When to exit losing trades;
(6) Take Profit — When to exit profitable trades;
(7) Countermeasures — How to respond to sudden situations;
(8) Follow-up — Actions after trading ends.
After formulating the strategy, the next step is to execute it, then wait, stay patient, and strictly adhere to trading discipline (please refer to past articles for trading discipline). Quietly wait for the market to develop towards your expected target.
As time goes by, there are only two outcomes:
Loss: Summarize experiences, accumulate lessons, become stronger after setbacks, and losses are a normal trading cost; very normal.
Profit: Take the money and run; you can add to your position or adjust the stop loss to seek more profit.
A trading process is complete; this is the famous TLS technical analysis method:
Trend + Key Levels + Signals = Successful Trading
4. Practical Application
Talk is cheap; let’s give an example. Let's take this wave of Bitcoin trading that occurred on February 6 of this month as an example. I personally captured this wave and made a profit, so it left a deep impression.
We found on the daily chart that although the market is in a volatile state, the current trend is a rapid upward movement, belonging to a one-sided market. The first step of observing the trend is complete; next, we need to find key levels.
Example Chart
We found a support level (yellow area) and two resistance levels (purple area) on the daily chart. The current price (36847) is very close to the first resistance level, and it formed a strong bullish candle, indicating strong upward momentum. So let's look for the possibility of breaking through the resistance level in the smaller time frames.
Example Chart
Next comes the third step: Find Signals.
We found on the 4-hour chart that at 20:00 on February 3, a bullish candlestick pattern of a rising three methods was formed, indicating a bullish trend in the early to mid-stage, and this round of upward momentum is strong. We have reason to believe it will reach the first resistance level of 37200-38200 and plan to enter with a light position. Let's calculate the risk-reward ratio.
Example Chart
We choose to enter on a breakout at 36854, with a take profit point of 38192 and a stop loss point of 35937 (the opening price of the third line in the rising three methods structure serves as support, which is also the highest point in the pattern).
Risk-Reward Ratio: 36854 minus 35937: 38192 minus 36854 = 917:1338, approximately 1:1.46. Although not too high, it is also greater than 1:1, so we decide to enter.
Example Chart
The trading strategy is as follows:
(1) Asset — BTC;
(2) Position Size — 0.1 BTC;
(3) Direction — Long;
(4) Entry Point — 36854;
(5) Stop Loss — 35937;
(6) Take Profit — 38192;
(7) Countermeasures — If the next candle closes more than 50% into the previous bullish candle, sell high, abandon this trade, and ensure to manually close positions while in profit as much as possible;
(8) Follow-up — If the market breaks above the first resistance level and continues to strengthen, continue to hold your position or reduce it slightly, depending on the specific situation.
Then wait for the market to give us feedback.
The next day (February 4, 12:00), the market successfully reached our take profit point of 38192, with the highest point going to 38288, and we exited smoothly. This trading round yielded a profit of (38192-36854)*0.1=133.8 USDT.
Example Chart
Wait, it’s not over yet. Let's see what patterns the market will form in the first resistance level zone. Will it be a triangular consolidation? Or will it break down immediately? Or continue to rise? It turns out to form a breakdown followed by a rebound. The center of gravity has not shifted downward, and we have ruled out the possibility of a false breakout.
Example Chart
We decided to attempt to enter the market again, betting on the profit space of the next resistance level (40000-41000), and started looking for entry signals. Indeed, the market gave us a bullish engulfing pattern, and the next large bullish candle was almost without a wick.
Example Chart
If we still choose to enter the market on a breakout, we would set the take profit at 40471 and the stop loss at the bottom of the current resistance level (which has now turned into a support level) at 37201. Let's calculate the risk-reward ratio: 38291 minus 37201: 40471 minus 38291 = 1090:2180 = 1:2, this risk-reward ratio is still good, so we decide to enter.
Example Chart
The trading strategy is as follows:
(1) Asset — BTC;
(2) Position Size — 0.1 BTC;
(3) Direction — Long;
(4) Entry Point — 38291;
(5) Stop Loss — 37201;
(6) Take Profit — 40471;
(7) Countermeasures — If the next candle closes more than 61% into the previous bullish candle, sell high, abandon this trade, and ensure to manually close positions while in profit as much as possible;
(8) Follow-up — If the market breaks above the first resistance level and continues to strengthen, continue to hold your position or reduce it slightly, depending on the specific situation.
The remaining time is left to the market, and we will wait and see. Indeed, the market peaked at 40849, successfully reaching our take profit point, and we exited smoothly. This trading round yielded a profit of 2180 points, 218 USDT.
Example Chart
Then we noticed a large bearish candle followed immediately, indicating that the price lacked the strength to stay above this resistance level, at least not on the 4-hour timeframe. Since spot trading does not allow for shorting, this round of trading concludes here, with a total profit of 133U + 218U. It only took 2 days, which is quite a good result.
Conclusion
So, is trading that hard? Not really. As long as you understand which trend you are following, your logic is clear, and you 100% believe in your formulated strategy, then just execute it firmly.
Some may say this is hindsight trading, to which I have no response, and I'm too lazy to prove anything with a trading record. If you have read my previous technical analysis articles, you would not believe this is hindsight trading. You can also find out why the take profit and stop loss points were set up that way. Why the follow-up should be formulated like this. How to find the main support and resistance levels?