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Nick Goold

Market analysis

Another big week of gains for the Dow Jones index last week as the strong trending conditions persisted. The week ended very positively as oil stocks rose significantly, Apple also reported strong earnings. 2022 still presents many good trading opportunities for day and swing traders due to strong market moves.

This Wednesday afternoon United States time, the US Central Bank is likely to announce another official interest rate increase of 0.75% to 4.00%. 10-year US interest rates have fallen by 0.20% to 4.0% in the past week, helping push US stocks higher. The market will be closely watching the statement by the Fed to confirm the market’s expectation that the rate of future interest rate increases will slow.

Currently, the market’s sentiment is very positive following last week’s close, but the market is overbought in the short-term. Short-term traders are likely best to look for selling opportunities this week. Swing traders might want to reduce long positions and wait for the market to return closer to the 10-day moving average to buy the Dow Jones Index.

Daily NY Dow with 10 day moving average

Resistance:33000, 34000, 34300, 35000

Support:32000, 31000, 30000, 29000, 28500, 27500, 26500

How to place target and stop when day trading the Dow

When day trading many traders focus too much on predicting future price movements. Even if you have a high rate of winning, for example 80%, you will lose if you do not follow a risk management plan. A good risk management plan can grow your account over the long term with a win-ratio of 50% or lower.

Know your trade style

There are three trading styles to choose from, scalping, day trading and swing trading. A scalping strategy has the small targets and stops, and a swing strategy has large targets and stops. Mixing strategies can be hard, so it is best to focus on one style. Once you have chosen a trading style, it is easier to decide on your risk management plan.

Understand market volatility

Understanding your market’s volatility will make it easier to set a reasonable target and stop. A simple strategy is to calculate the average range of the chart period you trade, then set your stop 40% of the average-range and target at least 80% of the average range. A scalping strategy would take the average range (high minus low) of 5-minute bars, day trading 30 or 60-minute bars and swing trading daily bars. So, if the recent 5-minute range is 10 pips your stop would be 4 pips and target at least 8 pips.

Aim for a risk reward ratio over 1

Risk reward is the ratio of profit versus loss. Achieving an average profit higher than loss will make it much easier to make long term profits. Traders should focus on high profit to loss trading opportunities instead of trying to predict the future.

Understand support and resistance

When holding a long position, place your stop below support above resistance when holding a short position. In order to set a small stop and large target when buying, find an entry point close to support, and when selling close to resistance.

Use a time stop

The longer you hold a loss, the more difficult it can be to follow your stop. If your trade has not been profitable after a set period of time, it is usually best to exit and look for another opportunity. Time period examples, when scalping would be 15 minutes, day trading 3 hours, and swing trading three days.