Getting in on the edge
Learning how to take trades on “the edge” or on a “pivot” is crutial in becoming a professional trader. While most traders are waiting for confirmation that an area has already held, we are pinpointing the exact area we anticipate a bounce. According to Bo Yoder, trading on the edge is a very important and profitable skill to learn: “This market-making style delivers an edge because I am buying against support before confirmation exists. The majority of active traders wait for confirmation, and in doing so are forced to pay me a one-to four-point premium for the privilege.”
Our short-term trading style allows us to use the neccessary tools to pinpoint our entries. By using shorter-term charts, we can zoom in on the area that is expected to bounce. Most traders I talk to (outside of our trading group) use minute charts with a volume indicator at the bottom of the chart. On the other hand, we use “tick charts”. Tick charts plot bars based on a certain number of transactions. For example, a 233 tick chart would contain 233 transactions per bar. It could take 10 seconds or 10 minutes to complete 233 transactions. Either way, you would get 1 bar for every 233 transactions. Since volume is indicated in the actal bars, we don’t need to use a volume indicator below our price bars.
So what’s the difference and why do we care? As we know, tick charts allow us to see every single transaction reflected in price bars. Whereas, minute charts plot bars based soley upon a certain period of time. If used with volume, minute charts offer a similar picture to tick charts. The difference would be like watching a movie on a regular screen, and someone else watching the movie with 3D glasses. Same movie, different perspective. And our perspective on the market allows us to anticipate pivots with “price action”. Price action is used similiary to candlestick patterns on minute charts (i.e. doji, hammer, morning star). With price action, we have identified similar reversal patterns that work with a high degree of accuracy.
To effectively use our specific time frames and price action, we must have an effective way to discover areas anticipated to bounce. Many traders use momentum indicators and oscillators to discover strength and weakness in a trend (i.e. MACD, RSI, CCI). My trading group uses an indicator that is very good at pinpointing when an area should hold. Whatever you use, it needs to be an indicator that works for you. Note: I do not sell software.
Whatever trading style you employ, you need to have an effective way to get in on the edge. To become a professional trader, seperate yourself from the masses and use what works for you. I recommend using historical charts to go back and test your theories. There are many educational sources available for trading. Which ever one you choose, make sure it fits your risk, equity, and time objectives.
