EUR/USD trade as an example for any other market.

I am trading the EUR/USD and it gives a good example of trading a longer time frame by plotting an entrance in a shorter time frame. Though I’m using the minute and 15 minute chart of the FX, it applies just the same to the daily and weekly chart of an equity chart.

Looking at the 15 minute chart, the bigger structure shows an uptrending channel with the price having just bounced off the diagonal support line.  Though I used the one minute chart to time the entry, I can now look at the slightly bigger picture for the forecast that it could climb above 1.38 before even nearing the topside resistance line of that channel.  Buying around 1.368 with a sell order below 1.364 support area gives me a risk in the trade of about .004.  Using an initial target of the potential resistance at the last high around 1.378, this gives a profit potential of .0100.  So the reward to risk ration is about 2.5/1.

Using a target of somewhere toward the top of the channel, say 1.3880, the risk reward would be about 5/1.  If you make 5 when you win and lose 1 when you lose, you can be wrong 8 times out of ten and still make money.  Now, it may be not reasonable to expect a 5 to 1 risk/reward ration for every stock trade you want to put on, but it is a good example of the power of putting the odds in your favor.

This is based on the simple principle that markets move in trends.  Trading with the trend, buying low in the channel and selling high in the channel is one of the best strategies for entering a trade with a higher probability of success.