Published by Allen Brown
Have you tried trading with many indicators? How was the experience? Sometimes, trading with many indicators might confuse you, making you lose your trade. If you are not conversant with trading indicators, a naked trading strategy might be your best option. What is a naked trading strategy? With this strategy, you trade without relying on market indicators.
Also known as price action trading, the naked trading strategy goes against the odds of using at least two indicators to carry out your forex trading. You only need to decide whether you’ll trade or not and if the trade is worth taking the risk without checking any indicators. This article will discuss what naked trading strategy is and other things you need to know about.
What is Naked Forex Trading?
With a naked trading strategy, you base the market on what you are experiencing. It does not involve past or future speculations of the market. You carry out your trading without indicators while basing your trade on candlesticks and charts that are before you. It is essential to familiarize yourself with candlesticks and trading charts before you trade using the naked trading strategy.
You have to learn how to read the charts and candlestick patterns to become a pro in this trading strategy. When you fail to analyze these infographics, it will become complicated to trade on a naked trading strategy successfully.
With naked trading, you simplify your trades. This situation means that you don’t get deep into analyzing indicators and that your trade is based on the current market. It is a form of technical analysis, where traders analyze the situation before diving into trading.
Here are some things you need to understand when using a naked trading strategy.
Understand Trends
To be successful in naked trading, you have to understand the market and its cycle fully. You will experience low and high trends in a stock market, which vary from time to time. You have to understand these movements to become a pro in the naked trading strategy. When you are an experienced trader, it will be easier for you to trade along with the trends and not against them.
Understand the Market Psychology
It is essential to understand market psychology before trading to avoid parting with your money quickly. You shouldn’t be a trader who rushes to buy when the large candlestick has shot upwards. When the large candlestick shoots upwards, it’s time to sell and make smart money. Also, if you are a wise trader, you will know how to cash in quickly, especially in highly volatile markets. A Highly volatile market in naked trading is a good thing since it helps traders frequently trade, thus making more money or losses. Ranging markets, on the other hand, are never suitable for a naked trading strategy.
Trendlines, Support, and Resistance Levels
When you are a trader using the naked trading strategy, you can incorporate trendlines, support, and resistance levels in your trading. However, you should not draw many lines as this might cost you your trade. Trading experts recommend drawing five or fewer lines, with the recent ones more relevant than the preceding ones.
When do you use trendlines, support, and resistance levels? Mainly, these are used by individuals who want to carry out naked trading but will want to confirm the market position before making the trade.
Can Anyone Trade Using a Naked Trading Strategy?
While this trading might not fit every trader, it is essential for anyone getting into trading to try it. When it does not fit you, you can try the price action option before using the indicators to carry on your trade.
While indicators help you to confirm the market at hand, a naked trading strategy is more accessible and relieves you from the hectic process of analyzing the market. You might lose many opportunities if you go ahead with analyzing the market with indicators.
Price Action Patterns to Look for in Naked Trading
There are two common price action patterns in naked trading, as detailed below.
- Head and Shoulders: This pattern is commonly used and consists of two shoulders representing the lows and the head representing the highest trading point.
- Wedge Patterns: Also known as a triangle pattern, it helps to determine the price movements either closer or far from each other.
Candlestick Patterns to Look For
There are two main patterns involved here, the hammer and the engulfing pattern.
- The Hammer: This pattern signifies a reversal in the offing when seen at the trending bottom.
- Engulfing pattern: This pattern signals that a trade reversal is soon taking place.
If you are a new trader, you might mess everything up when you rely on indicators to close your trade. It is essential to train yourself how to trade without indicators by using the naked trading strategy. This article has highlighted all the essential points of this strategy. When you follow it keenly, it will give you a clue on how the strategy works.