Precisely predicting the market is impossible. Markets move in cycles. In a technical chart you will find peaks and bottoms. These peaks and bottoms try to give some idea about the price trends. These are the support and resistance levels and we can take a guess on the market behaviour based on these past trends. This is a guess. There is no hard and fast rule that the price has to follow this pattern. These peaks and bottoms where based on past behaviour of individuals. The guess is entirely based on the expectation that they will continue to behave in the same manner again. It may or may not happen. The present conditions may be different from what it was earlier leading to a new behaviour.

So what do you do? Follow the past patterns, find out the highs and lows and begin to trade. Buy when the price is at the support level (low) and sell when the price is at the resistance level (high). This method may give your huge profits or huge losses. You may land up in a situation where you are buying high and selling low. The wise strategy would be to fix profit levels and loss levels. Loss levels are necessary to ensure that if the market goes against your expectations then you should be able to quit the trade by keeping your losses within your affordable limits. You must decide upon a reasonable rate of return for your investments. Once that is reached you should get out of the trade and realise your profits. In the same manner, if the trade is going against you, you should get out at the levels fixed by you for exiting such trades. This will ensure that you don’t loose your capital while making reasonable returns. Over a period of time it is possible to make handsome profits. Most investors are not able to make this because they do not follow these guidelines for their trades. When the trade is in their favour then they are in a hurry to get out of the trade and realise the profits. When a trade is going against them they hold on to it under the hope that the market will turn, which never happens. A prudent trader should behave in the opposite. When his trade is making profits he should hold on to it and when it is making losses he should exit out of it.

Now what is the reasonable rate of return and at what levels should you exit the trade if the trade is going against you. This is related to the extent to which you are willing to take risks and the amount of capital you are able to invest for trading.