Naked trading refers to trading without using trading indicators. If your trading indicators confuse you and you don’t feel comfortable using them, then you should turn to naked trading.
Technical analysis is a complex process that involves using technical indicators and several other tools to analyze market trends. Therefore, it is overwhelming for most traders to conduct technical analysis in the right way. Naked trading is the best option for those traders as it eliminates the use of complicated tools.
Our today’s post is going to tell you what is naked trading and how you can capitalize on it to maximize the odds of success.
What is naked trading?
Naked trading, also known as price action trading, is one of the best alternatives to technical analysis. It involves trading without relying on technical indicators or any other technical analysis tool. That means, you simply rely on price action to choose the best entry and exit points. In fact, naked trading empowers traders to stay as close to the trading action as possible as they only have to rely on live prices.
So, what is exactly naked trading? In simple words, price action trading eliminates technical analysis from the picture. It involves relying only on the current prices and price action. That means you don’t need to analyze the past price action. Similarly, you don’t need to predict or forecast future price action. You simply observe and analyze current prices to establish entry or exit points.
How to do naked trading?
As we mentioned earlier, naked trading means no involvement of technical analysis or indicators. Then how do you trade price action trading strategy? Price action, candlestick charts, and chart patterns.
You can trade naked by relying on price action, candlestick charts, and chart patterns. Naked trading requires you to fully understand market trends, candlesticks, and candlestick patterns.
The first thing you need to understand for trading naked is market trends. You need to know what is an uptrend? What are the characteristics of a downtrend? And also about the sideways trend. Naked traders must keep in mind that the market moves in cycles. For example, a trading instrument may start at a ranging low. Then it moves upward and starts a ranging high. Finally, it will again move to the low. So, the cycle gets complete. Therefore, it is important for naked trading to analyze whether it is an uptrend or downtrend in the market.
Understanding the current trend in the market is a prerequisite to successful naked trading. Moreover, it is also important to note that they appear on both large-scale and small-scale charts. A good naked trader always rides the trends. Otherwise, going against the trends bring only failure.
Secondly, understanding market psychology is also imperative for successful price action trading. Furthermore, human psychology is a key player in making or losing money.
There are two major types of market players – smart and dumb. Smart players are behind smart moves and from them flows smart money. They enter the game before dumb money. Therefore, it is important for a successful naked trader to enter a trade before the formation of large green candles. You cannot make money if you enter during the formation. Why so? Because large selling often follows those long green candles.
As you know, naked trading doesn’t involve technical indicators. Therefore, you have only price action and charts to use as trading triggers. So, the naked trading strategy also depends on how you read charts. The best types of charts are candlestick charts. If you aspire to trade successfully, you need to learn candlestick patterns. When you rely on candlesticks for trading decisions, you don’t need to fall into confusion caused by trading indicators.
Besides confusing, trading indicators also make you focus on multiple aspects. Conversely, candlesticks or other simple charts relieve you from such a burden. They enable you to focus only on one aspect and that is the current price action. So, price action trading makes trading effortless. However, it is important to learn charts with precision and perfection.
Identifying areas of support and resistance
Support and resistance are two important areas on your charts. Like all other trading techniques, this strategy also involves careful identification of those areas. As you know, these areas of support and resistance provide the best entry or exit points.
However, when trading naked, you don’t need to overwhelm yourself by withdrawing too many levels. You should draw only four or five levels you are sure about. It keeps things simple and also provides the best entry or exit points.
One of the most useful naked trading strategies is the range trading strategy. It involves identifying ranging prices. When the price of a particular instrument reaches the edge of one range, look for an entry position to target the other extreme range level. You can continue to target these extreme levels and make significant profits without relying on any complex tools or indicators.
Is naked trading right for you?
Naked trading is a simple trading technique that doesn’t involve any complex technical analysis. You don’t need to use overwhelming technical indicators for trading. However, there are certain aspects that you need to be an expert at. For example, you must be good at identifying market trends. Similarly, you must be good at reading charts and determining patterns with precision and perfection. Moreover, key important areas on your charts are also important. So, you also need to know about areas such as support and resistance. Simply put, you need to learn all those basics to be a successful naked trader.
That said, if you have all the skills discussed earlier, price action trading might be a good idea for you. However, the main point is we all have to determine what trading technique suits us. Therefore, think about your skills, acquire new skills if needed, and only then start trading naked.