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This is PART ONE of our series on accessing THE BATTLEFIELD TERRAIN (the current market conditions) before entering a trade.
ACCESSIBLE TERRAIN:
According to SUN TZU, one of our 5 star generals, ACCESSIBLE TERRAIN is defined as ground that is traveled with relative ease, wherein the line of supplies is to be carefully guarded (see THE ART OF WAR, X, 2-3). THE CROSSHAIRS TRADER interprets this as a trending market with healthy pullbacks to moving average lines, such as the 21, 50, or 200 (referred to in the Crosshairs Trader Dictionary as 21, 50, 200 TANKS). A trending market can either be bullish or bearish. Depending on the timeframe used to enter and exit trades, a trend is usually defined as three consecutive movements of a stock in the same direction, with a higher high (or lower low) within each move. The best trends are those that pull back (or rise to) a moving average as support (or resistance) or those movements where there are clear points of departure from a subjective trend line.
In trading this type of market, THE CROSSHAIRS TRADER follows very simple rules:
1) Enter the battlefield or add to your soldier’s strength when there is a pullback to support, such as a moving average. In crosshairs language, these moving averages provide strong support in the form of 21, 50, 200 tanks. If these support lines have provided support in the past then they are likely to continue to do so until proven otherwise.
2) Buy stock options 4-6 months out in time due to the possible length of time in the trade. Buying time allows for a strong trend to work to your advantage, which could be several days to a few weeks. The minor pullbacks associated with a trending market can give you the confidence to hold on to and even add to your position or close out the recent position with a gain and wait to enter again.
3) Trade in the direction of the major market indices. Most stocks will perform at their best when fighting in conjunction with other soldiers either within the same sector and/or the overall market. If ACCESSIBLE TERRAIN is present in the general market, then THE CROSSHAIRS TRADER can trade with confidence knowing that the major battlefield is coordinated with the same goal in mind-to cover ground relatively slowly over an extended period of time.
A trending stock and stock market, considered ACCESSIBLE TERRAIN, provides the trader with a great opportunity to make money if traded correctly. Recognizing a trending market and then determining points of attack is the key to success. Great generals have all had to make battle decisions based on current battlefield conditions or risk ultimate defeat.
We would do well to heed the advice of SUN TZU when he says, ”The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.” (I, 26).
TRADING IS WAR. PREPARE YOUR WEAPONS.
Related posts:
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- TEMPORIZING GROUND: TRADING OPTIONS IN A RANGE BOUND MARKET This is PART THREE of our series on...
- GREAT DISTANCES: TRADING OPTIONS AFTER A BIG MOVE This is PART SIX (and the last one) of our...
- NARROW PASSES: TRADING OPTIONS IN A NARROW RANGE This is PART FIVE of our series on accessing...
- THE CROSSHAIRS TRADER DICTIONARY: COORDINATED ATTACK WHEN TRADING OPTIONS This is the latest entry in THE CROSSHAIRS TRADER DICTIONARY....
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