In previous posts on my Blog I have written about the the 4 Ms and the 5 or 6 Ps. I thought it about time I added the 4 Cs! The 4 Cs came about through Swing Trading. When I am looking for Swing Trades I use Multi-Time Frame Analysis (MTFA) in my trade planning. People have asked me in the past why I ‘laboriously’ look at all the different time frame charts when looking for and planning a trade, rather than stick to a single time frame. Here is why..In the first instance I am looking for Confluences in the market, points in time and space where several things are setting up on different time frames, which could lead to a potential trade.
I have found that the highest probability swing trades tend to occur when you get a Confluence of things happening. Such a Confluence may include key Support or Resistance, a key Fib Level, Divergence, etc with one or more things on different time frames. So the Confluence may include a Weekly Fib level, a Daily Resistance Zone (Supply) and 4hr Divergence and maybe a decent rejection candlestick such as a ‘Pinbar’ on one of these time frames. The more reasons for a potential trade, the higher the probability of success. So the first C is Confluence.
The next is Context. Before taking any trade I want to try and nail the Context of any planned trade. Will it be with an established trend or are we planning on trading a correction against the trend, or do we think the trend is at an end and we intend trading a reversal swing in the market? The Context is important because, if we get it right, it should stop us from ‘jumping in front of an oncoming Bus!’ plus it will dictate our Target expectations. So the second C is Context.
Then we come on to Confirmation. When planning a trade I will be looking for the market to confirm the direction of my intended trade in some way or other. So we can identify levels beyond which we might be interested in an entry, we could look for relevant candlestick patterns or wait for price action to suggest a direction. Either way we need a ‘line in the sand’ beyond which we would be happy to take a trade. So the third C is Confirmation.
Lastly, if we have done all the above and everything lines up, then we should have no compunction about Committing to the trade. Being happy to Commit to a trade in the knowledge that you have down all you can to ensure it has a high chance of success, makes for less stressful trading conditions. So the fourth C is Commit.
So you can see that the 4 Cs go hand in hand and consecutively build to help find, plan and then take a trade and manage it through to it’s natural Conclusion, maybe I should make that 5Cs! Top Trading Tip: When trading higher time frames and when Swing Trading, try and apply the 4 Cs to improve the probability of success of any trades you may take. So that’s: Confluence, Context, Confirmation and Commit.
Martin Walker, ForexTradingLondon.com
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