Second, measure your return of the transaction
The next step of trading then would be to calculate your returns. As profiting comes with risks, your return should at least triple your risks for compensation. In the above-mentioned crude oil example, the potential market return needs to hit at least $600. It is predicted by looking at the potential reversing position of price after a trend is established.
In long sale for crude oil, a trader must identify objectively the selling-dense region on the trend chart to understand where the proper price range might be to reverse.
In the following two CLH20 charts, we will try to observe two different trading opportunities.
In the first chart, we can see a valid price supporting range, as the price did not fall back to that range after a strong rebounce. After confirmed, there will be a huge potential to rise afterwards.
In the second chart, we observe a gap, which often means a huge sell-off due to the huge seller pressure caused the price to fall sharply. This is a typical case where a trader can seek to make a profit. In fact, above the gap would be a good entry position.
We can see the final result in the chart below, the price rises to the gap area and immediately falls back. If the trader does not find this information objectively, then the price increase may make him go mad, resulting in no profit or close out.
Third, identify the trading probabilities
Your trading results are interlinked with the probability. If we do not even know the probability to profit in the market, it is better to stay away from the market. To know this, you must use a consistent measure.
Probability might be difficult to quantify, but through long-term data statistics and some objective facts, we can find a reasonable entry point and increase the probability of success.
Take the following chart as an example. Buying in would be a good choice because the price of crude oil has fallen by more than $12 and is approaching the long-term price support region. In the past year, buyers have stepped in and bought a lot of contracts. In addition, crude oil is in a very clear volatile range, so that in this range, more effective trading opportunities can be obtained.
Trading has infinite possibilities. Try to manage your own risks, and develop a way to clearly evaluate returns and probabilities, then you will eventually find a method of your own to win sustained profitability.
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