There are no shortage of pundits and gurus that give advice about what the markets are going to do next. Unfortunately, it's virtually all self serving and not helpful to traders. The best advice is free and is furnished by the U.S. government and Institutions that can be trusted. To see the official economic reports updated twice per hour click here.

Tools You Can Use

If you would like to learn how to hedge your portfolio with covered call options or put on the perfect options spread position; use our free tools. Get them here.

One More Free Indicator

There is one more indicator that merits serious consideration for your chart. That indicator is MACD, momentum, or an oscillator of some type to to fine tune entries. These indicator like most, use price as their input, thus the results are very similar after minimal manipulation to the indicators parameters. Most of these indicators are provided free by virtually everyone offering free charts. Indicators are similar to a speedometer in a car, often you have a good sense of how fast your going and don't need it, but on some occasions your distracted and you don't realize your going 85 mph. Indicators help you maintain a constant speed , or in the case trading, constant or consistent trades.

Learning to trade successfully requires a trader to personalize a profitable trading method that suits their personality and financial circumstance. After a trader accomplishes this, the objective is to repeat their profitable setups time and time again.

Trading Method

A trading method is your plan to interact with the financial market given a certain set of financial conditions. Not having a defined trading method is simply throwing money away. Actually it's more like giving your money to people that have a trading method. A trading method is intimate and personal. You really can't use someone else's trading method so much as you can wear someone else's underwear. Well you could wear someone else's underwear but it won't feel comfortable, just like someone else's trading method. Don't get me wrong, you can use elements and research that others have done, but you must own it. You can only own a trading method by doing the work. The work is trading it with real money and documenting all aspects of the trading method and of course profitability. Once you have done the work of determining your trading method is profitable, you then own it.

It seems there is no shortage of people selling all kinds of methods. I often wonder if their trading method was so good, why would they reveal their trading method to us ? It really doesn't matter why so many people are selling trading methods, what is important is the basics of any trading method is you.

A Simple But Highly Effective Trading Method

Many trading methods require proprietary indicators, signal services, data feeds, subscription services and a host of other things to commercialize a trading method for profit. Some of these products my be well worth the money and serve you well, but there are other alternatives of similar value that happen to be free.

First off, a trading method is only as good as the money management and trading psychology used to apply the trading method. These two elements seem to trip people up more than trading methods. Many very smart and successful people fail miserably at money management and or trading psychology.

Trading Method For Any Time Frame

Simple Moving Averages or SMA is the most powerful indicator available based totally on price which is the only thing that really matters in the trading business. SMA is provided free by virtually all providers of free charts like Yahoo, MSN, quote.com, stockcharts.com to name a few, but there are countless other free sources of market data. Volume is equally important and also provided for free by these same providers mentioned already. At some point, you may want to spend money on charts, but it is not necessary. After you have made some money, then spend money to make more money. A business that keeps expenses low will always be a better business.

The 8 and 20 SMA's have proven to be the most effective for maximizing profit and minimizing risk. The cross of the 8 and 20 SMA's signal that a potential trade may be developing. After the cross has been made, common price patterns like ascending triangles, symmetrical triangles, flags, pendants and so on are used to enter the trade. The market can also be entered on a pull back to the 8 period SMA. All trade entries are done with respect to support and resistance. Support and resistance defines the boundaries of recent price action or would I sometimes refer to as the neighborhood you are trading in. Like real estate, it is all about location. Never attempt to buy lows or sell highs because it is a losing proposition. A good location to put on a trade is after a test of support or resistance and above the 20 SMA for buys and below the 20 SMA for short positions. This will put you in a good neighborhood to execute your trade. This trading method can be used on any time frame. Whether you want to position trade, swing trade , or even daytrade.

Before entry is considered, stop loss price should be determined. This represents your maximum risk on trade which should not exceed 5% of trading capital. Most traders set stops too tight which in many cases makes getting stopped out inevitable. Protective stops should be below support if you are buying the market, but not in such an obvious place that most market participants acknowledge the price level. Stops that are too tight will lose you money as you will be stopped out frequently with normal market moves.

Keltner Channel

Another tool that is extremely helpful is the Keltner Channel developed by Chester W. Keltner. Keltner Channels are available on some free data services so you can add it to your chart in addition to the SMA's and volume. This study creates upper and lower bands that show overbought and oversold conditions or price extremes. Extreme buying and selling is almost always followed by a price movement in the opposite direction which is why this area should never be a trade entry. This would be considered a bad neighborhood to execute an entry but is an ideal place to take profit. Traders should wait until price comes to equilibrium which will be towards the center of the Keltner Channel and then enter trade; this is usually described as a pull back. This may take some patience as a daily chart might take several days for this to trigger, but the rewards are more than worth the effort in improved profitability. The channels can also be used to help determine profit targets and stop loss price levels. Generally for buys, the top of the Keltner Channel serves as an initial price target while the bottom serves as the stop loss price level.

Summary of Trading Method

This trading method is a trend following method that ideally places trades in the middle of a Keltner Channel . The cross of the 8 and 20 SMA's are the alert that a trade may be setting up. It may be several additional bars for a trade to actually trigger. After the SMA 8-20 cross, we are looking for a pull back to the 8 or 20 SMA with a confirming price pattern like an ascending triangle or similar pattern that you are comfortable with. This setup should be accompanied by increasing volume to further confirm to the trade.

The example trade setup above shows the 8-20sma cross alerting of a possible trade, but entry does not occur for 14 days or about 2 weeks on this daily chart of SPY. The trade was entered on a pull back using a limit order at the 8 sma. The initial stop for this trade is the outer band of the Keltner Channel. The Keltner Channel is set to 2.5 ATR which is 2.5 times average true range of the channel. The stop can be tightened as the trade progresses but stops that are too tight will be hit too often to make money. The initial target is the top of the channel which is hit in just 2 bars. The stop can be moved to the 20 sma which happens to be about the entry price. The trade should be exited on the 8 or 20 sma line. Because this trade moves quickly in our direction at the top of the Keltner Channel, we use the 8 sma as an exit which occurs about 2 weeks later. Soon after our exit there is another 8-20 sma cross which signals an alert for a new trade. Profitable traders always make money management, trading method, and trade psychology components of every trade.

The above information isn't presented to give you a trading method, but to show simple components that can be found for free on the web. They can then be organized into personalized trading methods that fits your own trading psychology. Perhaps the most important part of a good trading method is the ability to capitalize on the emotion of others that lack a trading method and trading psychology. Consider the euphoria when the major indexes like the S&P 500 and the Nasdaq make big moves of greater than 2% in a single day. This move is ALWAYS accompanied by a retracement of some or all of the gain within a few days. These moves are started with strong buying and is driven even higher by new buyers who fear missing out on the move. Once the fearful buyers finish buying, the earlier buyers begin to take profits and cause the market to reverse. Money is made everyday in the markets by traders and investors that have a trading method and proper trading psychology.