Many people understand that they need a trading strategy, or in other words, a trading model, when they engage in trading. So what does a trading model consist of? Technical indicators. As a result, many people start learning about technical indicators.

After learning about technical indicators, one might feel confused about what to do next. Establish a trading system? But what logic should be used to build the trading system?

This underlying logic is the soul that supports the entire trading system, and all technical indicators serve this underlying logic.

There are numerous trading logics available on the market, a veritable cornucopia. In the early years, I tested many of them and found that some were too complex to use, while others turned out to be ineffective in the end.

So, in the following articles, I will detail five trading logics that I find very effective, which can serve as a foundation for your trading strategies.

After that, you can combine your own trading habits with different technical indicators and strategies to build a comprehensive trading system, and capture profits in the market.

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Logic 1: Trade the Big, Enter the Small

"Trade the Big, Enter the Small" is a trading logic based on cycle resonance, which means entering a position in a smaller time frame after the direction is determined by a larger time frame. This approach is divided into two of the most common methods:

The first method: After the larger time frame sets the direction, enter the position in the smaller time frame and ride the trend of the larger time frame.For instance, after determining the bullish direction on the daily chart, one can enter long positions on the hourly chart, set a stop loss, and hold the order waiting for the trend to unfold on the daily level. The advantage of this approach is that the stop loss space on the hourly level is small, while the directional space on the daily level is large, resulting in an excellent risk-reward ratio for the order.

Let me illustrate this with a diagram.

On the left is the daily chart, and on the right is the hourly chart. After the daily chart forms a double bottom breakout, confirming a bullish trend, one should look for opportunities to enter long positions on the hourly chart and hold for the major trend. Subsequently, when the market retraces to test the neckline support of the double bottom breakout, and after testing the support, a long-legged doji with a long lower shadow appears on the hourly chart, indicating a potential reversal. At this point, one can enter long positions with the stop loss set at the low point of the doji, and then hold the order long-term following the daily trend.

The second method: After determining the direction on a larger time frame, one can continuously conduct smaller trades in the direction of the larger time frame on a smaller time frame. For example, after the daily chart confirms a bullish direction, one can trade on the hourly chart, only going long and not short. Enter the market on the hourly chart, take a profit, and then exit. After that, look for more opportunities on the hourly chart to continue going long until the daily direction reverses, at which point one should stop the smaller trades.The trend in the middle is the same as in the upper part of the chart, representing the same market segment, with the left side being the daily level candlestick and the right side being the hourly level candlestick.

On the left side at the daily level, after the double bottom breaks, the bullish position is established. Then, switch to the 1-hour level. When the market tests the moving average from above downward and finds support, enter a long position, using a reversal candlestick as the standard for entry.

After each entry, set a stop loss. As the market drives upward, when the candlestick moves away from the moving average and gains a profit, close the position and wait for the market to fall back to the moving average again to continue entering long positions.

Repeat this cycle until the daily level turns. In the red circles on the right side of the 1-hour level, there are trading opportunities that can enter long positions and make profits.

Note the following:

These two approaches have their pros and cons. The first method is simple to operate; once an order is entered, it is held until the end, with little need to pay attention to the market. It is a long-term trading strategy, but holding long positions for a long time is a great test of patience.

The second method is more complex to operate, requiring attention to the market, but it breaks down the whole into parts, with each operation cycle being relatively short. It is a swing trading strategy.

Everyone should choose according to their personality traits and trading habits.

Logic 2: Indicator ResonanceIndicator resonance refers to the practice of entering a trade when two or more indicators point in the same direction, and these indicators are resonating within the same time frame.

For example, at the hourly level, when two indicators both point to a bullish direction, one would look for opportunities to go long on the chart.

In the chart below is the 1-hour candlestick chart of gold, with the RSI indicator at the bottom of the chart, and the double moving average indicator above the candlesticks.

After a rapid decline in the market, the RSI indicator enters the oversold area, suggesting an expectation for a reversal and upward movement, pointing to a bullish trend. At the same time, the double moving average also forms a bullish crossover, indicating an entry point for a long position, with a stop loss set at the low point of the market's retracement, followed by a significant market rise.

Note the following:

Double or triple indicator resonance is more commonly used. Resonance with more than three indicators becomes very complex to trade, reducing its feasibility, and is not recommended.

Additionally, we often combine an oscillator indicator with a trend indicator for use.

Logic 3: Specific Patterns

Specific patterns refer to the practice of trading only certain candlestick combination patterns, such as rectangle consolidation, triangle consolidation, flag consolidation, and so on.Here is the translation of the provided text into English:

The chart is a 1-hour timeframe of gold's candlestick pattern. After the first wave of the uptrend, a converging triangle consolidation pattern was formed. Entry is made after the break of the consolidation pattern, with the stop loss set at the previous inflection point, followed by a significant increase in the market.

Note the following:

If you decide to focus only on a certain pattern, you must study it thoroughly to understand its characteristics and to be able to identify it skillfully in actual trading.

Additionally, trading markets are interconnected, and this specific pattern is applicable across markets such as stocks, futures, and forex.

This trading model is also suitable for almost all time frames. If you feel that the trading frequency of a specific pattern for a single asset is too low, you can increase the frequency by adding more assets.

Logic 4: Specific Structure

A specific structure refers to trading only certain pattern structures in the market, such as the N-shaped structure in Dow Theory, or the structure of the main impulse wave and the correction wave in Elliott Wave Theory.

The chart is a 4-hour timeframe of crude oil's candlestick pattern. After a significant decline, the market shifted from bearish to bullish, forming the first wave of the uptrend and breaking through the descending channel, confirming the reversal with a bullish direction.

After the first wave is established, wait for the second wave correction. Entry is made after the correction tests the 50% Fibonacci retracement level, with the stop loss set at the previous low. Subsequently, the third wave is initiated.

Like with specific patterns, when you decide to trade a certain structure, you must grasp the details of that structure and execute it well. If you feel the trading frequency is too low, you can adjust the frequency by adding more assets.Logic 5: Top and Bottom Trading

Top and bottom trading refers to capturing reversals within a trend, typically after a significant rise or fall, trading is conducted based on technical criteria that identify signals that the trend may reverse.

In the middle is the gold 1-hour chart.

On the left side of the chart, after a substantial decline, a new low was established on February 27th, followed by a rebound. The next day, the market continued to fall and created a new low during the European session, but it quickly recovered, forming a fake breakout to trap bears, and then the market reversed, moving into a bullish trend.

On the right side, the pattern is similar; the market first reached a new high the day before, and after a simple pullback the next day, it broke upward during the European session, but quickly reversed to form a reversal candlestick, creating a bull trap, and then the market reversed, going into a bearish trend.

Key Points:

(1) There was a significant trend before.

(2) A new high or low was established on the first day.

(3) A fake breakout was formed during the European session on the second day.

This trading pattern can also be combined with important support and resistance levels to filter signals. The stop loss is determined by the high and low points of the reversal candlestick, with a very small stop loss space, and a large profit-to-loss ratio once the market moves.Pay attention to the following:

The structure in the example above essentially involves a fake breakout followed by a counter-trend, and it incorporates filtering conditions. The trade has a good risk-reward ratio, but the frequency is not high, requiring patience and waiting. You can also increase the frequency by adding more trading instruments.

I have explained five fundamental trading logics. Of course, there are far more than these five, but after careful selection, I chose these as the most common and easiest to execute, suitable for the majority of traders.

Additionally, there is no superiority or inferiority among these trading logics; each has its own strengths. Everyone should choose one that suits them, study it thoroughly, and then build upon it with other trading strategies to form a complete trading system that can lead to profitability.