Stock trading has become a very popular business in today’s world. Thousands of investors are making millions of dollars just by taking the trades in the major stocks. But earning money in the stock market is not as easy as it seems. Most stock traders buy the stock at the deep without knowing when the retracement might end. Very few traders have keen knowledge about the concept of retracement. The rookies are so biased with the concept of indicators and EAs, they hardly get any time to get into the essential elements of trading. To become a good trader, you must learn to trade with the key metrics. In this article, you learn to take trades at any financial market by using the most important parameters.
Understanding retracement
People who have basic knowledge about retracement often misguide the others by saying retracement is just one kind. But in the financial market, we have bullish and bearish retracement. Since we are looking to learn the method to buy the stock at the best price, we have to know about bearish retracement. When the price of a certain asset is strong uptrend but you notice a decent drop in the price that drop is known as a bearish retracement. To buy the stock at the best price, you have to know the endpoint of such retracement. Let’s learn some amazing techniques by which we can take trades in the stock market like a pro.
Finding the endpoint of retracement
To find the endpoint of retracement, we can use two concepts. Either we can depend on the chart pattern formation or we can use the Fibonacci retracement tools. Fibonacci retracement tool is widely used by the elite traders as it can tell you how far the retracement is taken place. For instance, if the price hits the 50% retracement level, we can say the bullish rally is faded by 50%. This means, nearly 50% of the gains have been erased from the market. Some traders prefer to chart pattern trading techniques. But to find the chart pattern, you should have a keen eye. However, many retail traders are using the auto chartist since it can draw an important chart pattern with accuracy. The endpoint of the retracement can be identified with the help of a chart. But there is a small twist while using the chart pattern.
Twist in chart pattern
The chart pattern is mostly used as a continuation and reversal pattern system. But if you ask yourself, how to buy shares using the concept of the chart pattern, you will notice the retracement is not an action. We are using the market momentum to trade the chart pattern. So, the expert uses both chart pattern and Fibonacci retracement tools to buy shares at the best price. Let’s give you a simple example that will help you to understand why both of these methods are used by the professionals. Let’s say, the price of a stock is testing the 50% retracement level. Right at that level, you have to low of the double bottom pattern. Chances are high the bulls will gain control of the market from this level and push the price to a new high. So, it’s an ideal place to buy shares for certain stocks.
Analyzing the company portfolio
Before you buy shares for a certain company, you have to analyze the company portfolio. Depending on the technical factor is not enough to buy shares at the most desired price. You have to analyze the portfolio of the company so that you can assess the potential growth for that company. Without knowing anything about the company’s infrastructure and business policy, it is very hard to relate to the global economy with the performance of that stock. It’s not about fundamental analysis rather getting deep into the company. You are going to buy the shares of a certain company which means, you are becoming an owner for a certain portion. Being an owner, you must know about your business model. If you ignore this step, you are ignoring the most critical concept of buying the shares at the best price.
Managing the risk exposure
Knowing to find the perfect price to buy the shares should not make you a greedy trader. The investment industry is full of surprises. Let’s say, a company is going to launch a new tech device the next month and you are expecting to see a strong rise in the price. You have done the proper analysis, and you are 100% sure the porotype is perfect. There is no doubt, the shares for that company will rise as soon as they announce their latest innovation. But due to a natural disaster, the company had to abort the product launch for six months. But you have already gone long and the price Deeping in the market. You might not remain solvent for those six months. The best idea is to cut the losses early.
Every trader should have a risk management plan for the trades. Buying shares is not that you are expecting a certain amount of return after a specific time. You have to evaluate the risk to reward ratio for that trade and only then your knowledge to find the perfect price to buy the shares will be useful.
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