Many will want more than just one indicator and will prefer a confluence of events to occur. Other tools will include trend lines, Bollinger bands, old support and resistance levels, volume, Fibonacci levels and so on. My suggestion is to just pull up some charts and look at what pullbacks cause your indicators to do regularly. It doesn’t have to be all the time, but if it does it enough, you have your tools for measuring a pullback.

3. Entering your trade should probably be the most mechanical of the three basics. The reason is because it is the point where emotions can run high and traders can get twitchy. It’s also a time when someone will start to question whether they have the first two basics right.

If you have determined that the trend is up, and a pullback has occurred you’ll need a way to get in and this is best done by waiting for some event or pattern.

Events can be that price has exceeded a certain number of price bars, or it crosses over a short moving average. If the pullback made lower highs and lower lows, you could wait for a higher low to be made which could signal that the pullback is over and enter after a break of the most recent high.

Once again, by looking at a few charts you can get a feel for what could work and what wouldn’t.

A simple and popular method is to wait for price to close higher than the previous 3 bars. In other words, the closing price of the current price bar must be higher than the 3 previous bars highs.

So there you have what I call the three basics of a trading plan or system however it is not the complete picture. It’s ok to get into the market but how do you get out? And it is this part of trading that I believe goes beyond the basics because everyone is different. Different goals, different risk profile and tolerance levels, different resources such as time and capital and so on. Because of this, an exit strategy needs to center around the trader themselves.

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