Introduction
Imagine a trader who enters every trade without a plan, relying on gut instinct and the hope that the market will move in the right direction. Does he make money? Sometimes, yes. But does he make money consistently? Almost never. Now imagine a different trader—one who has a clear methodology, knows exactly what he's looking for on the chart, and knows his entry and exit rules. He also loses sometimes, but his wins are greater than his losses, and his results are repeatable. What's the difference? Methodology and analysis.
This is the flashpoint between the scout (the emotional trader) and the businessman (the systematic investor). In this article, we'll show you how to build a solid trading methodology that you can repeat day after day with consistency.
What Exactly Is Trading Methodology?
A trading methodology is a set of rules that determine EXACTLY when you enter, where you place your stop-loss, where you take profit, and why you do each of these steps.
This isn't "I feel like Bitcoin is going to go up." It's "Bitcoin is testing the 95,000 resistance level three times, there's divergence in the RSI, so I'm entering with a stop-loss below that level.".
See the difference? The first is gambling. The second is trading.
Professional traders and investment fund managers don't work by feel. They work with methods that can be tested, analyzed, and repeated. To do this, you need three things:
A clear analytical system – tools for reading the market
Clear entry rules – when exactly do you enter?
Clear exit rules – stop-loss and take-profit
Technical Analysis Foundations – Tools for Your Methodology
Technical analysis is the science of reading price and volume history. The basic principle is: it's all happened before, and history repeats itself.
But what should you look for in charts? Here are the basics:
1) Support and Resistance – Your Anchors
Support is the level at which the price traditionally bounces upward. Resistance is the level at which the price traditionally stops and declines.
Why does it work? Because thousands of traders observe the same levels. When the price approaches support, everyone knows there might be a buying opportunity there. When it approaches resistance, everyone knows there might be a selling opportunity there. And this mass awareness creates reality – the price actually behaves in a certain way there.
How do you identify support and resistance? You look at previous highs and lows. If the price bounces back from 95,000 several times, it's a strong level—one to watch.
Practical example:
Bitcoin has been fluctuating between 90,000 (resistance) and 85,000 (support) for the past two weeks. If the price falls towards 85,000, it is a buying opportunity (support). If the price rises towards 90,000, it is a selling opportunity (resistance).
2) Trends – Understand the Market Direction
A trend is the direction in which a market is moving. It can be:
Uptrend – a series of higher highs and higher lows
Downtrend – a series of lower highs and lower lows
Consolidation (sideways) – the price oscillates between two levels without a clear direction
The basic rule? The trend is your friend. Don't try to trade against the trend, especially if you're a beginner. If Bitcoin is in a strong uptrend, look for buying opportunities. If it's in a downtrend, look for selling opportunities.
How do you identify a trend? You look at trendlines or moving averages.
3) Moving Averages – Dynamic Directional Indicator
A moving average is a line that shows the average price over the last X days. For example, a 50-day moving average is the average price over the last 50 days.
Why is this important? Because it shows the trend by eliminating short-term price "noise." If the price is above the 50-day moving average, it's a bullish signal. If it's below, it's a bearish signal.
Professionals primarily use the 50-day and 200-day moving averages. When they intersect (known as a golden cross), it signals a potential trend reversal.
4) Volume – Confirm Your Analysis
Volume is the number of shares, bonds, or lots bought and sold. But what does this have to do with your analysis?
Everything. High volume tells you there's real interest in the price move. Low volume tells you it could be a false move.
Example:
Bitcoin is rising from 95,000 to 96,000. But volume is still ultra-low. This suggests it could be a false breakout. A more credible breakout is one where volume increases significantly.
5) Candlestick Patterns – Read Market Psychology
Individual candles on a chart tell the story of the struggle between buyers and sellers. For example:
Hammer – a long wick below and a small body at the top. This indicates that sellers tried to push the price down, but buyers withdrew their efforts. A signal of a potential rebound.
Engulfing – a small candle immediately following a larger candle in the opposite direction. This indicates that the mood has shifted and the other side has taken control.
These patterns are not magical, but they reflect real changes in market psychology and indicate potential changes in direction.
Methodological Framework – How to Build Your System
Now that you know about the tools, how do you combine them into a methodology? Here's a systematic approach:
Step 1: Select Timeframe
Will you be analyzing 5-minute charts? Hourly? Daily? The timeframe you choose is crucial because it influences your tactics.
5-15 minutes = Scalping (very short term)
1 hour = Day trading (intraday)
4 hours – Day = Swing trading (2-5 days)
Week – Month = Position trading (long term)
Tip: For beginners, I recommend swing trading (4-hour or daily timeframe). It's long enough to avoid noise, but short enough to be interesting.
Step 2: Determine Your Entry Conditions
Now you define clear rules. For example:
Entry conditions for my system:
Price is testing a support level that has been touched at least twice
The RSI (momentum indicator) is below 30, suggesting a potential rebound
Volume is starting to grow, confirming buyer interest
I create a confirmation candle (e.g. hammer or bullish engulfing) at a support level
If all these conditions are met, I'm in.
This is a methodology. It's not "I feel good." It's a set of specific rules that I can repeat every day.
Step 3: Determine Stop-Loss and Take-Profit
Before you enter a position, you know exactly where you are going if you are wrong
You place your stop-loss at a logical level—usually below support. You don't place it haphazardly
Step 4: Watch for Multi-Timeframe Confirmations
This is where professionalism comes in. Before entering a 1-hour chart, check the 4-hour or daily chart. Is the overall trend up? Is support confirmed on the higher timeframe?
If the systems on different timeframes are aligned, your chance of a successful transaction increases significantly.
Types of Trading Methodologies
Now you know how to analyze. But what type of system will you be using?
1) Trend-Following Trading
Rules:
You identify the trend (uptrend or downtrend)
You are waiting for a pullback (temporary price reversal in the trend)
You enter when the price tests the trend direction again
You stick with the trend until it breaks
2) Trading Support/Resistance (Bounces from Levels)
This is a methodology where you don't look for trends. You look for key levels where price has historically bounced, and you trade rebounds from those levels.
Rules:
You identify key levels
You wait until the price gets closer to them
You enter when you see confirmation
You hold until the price breaks this level
3) Trading Mean Reversion
It's a methodology where you believe that a price that has deviated significantly will revert to its mean. You buy when it's too low and sell when it's too high.
Rules:
You identify Bollinger Bands or another volatility tool
When the price tests the external momentum (too extreme), you enter in the opposite direction
You expect the price to return to the average
Testing Methodology – Backtesting
Here comes the most important part – you can't just take a random system and start trading it with real money.
You need to take your system and test it against historical data. This is called backtesting. You're asking: Would my system have made money if I had used it in the past?
Backtesting tool:
TradingView (has built-in backtesting for strategies)
MT4/MT5 (for forex)
Python (if you want to automate)
Backtesting shows you:
How many times the system won (Win Rate)
What was the average profit and average loss?
Was there a losing streak (drawdown)
Is the system profitable?
Psychology Methodology – What's Worse Than Just Trading?
Here's the catch: You can have a perfect methodology, but if you're mentally incapable of executing it, you'll lose.
Who doesn't know this situation: you have a system that says, "Wait until support is tested three times." But the price tests support a second time, and you think, "Why wait? I'm in now!" And you get in too early. And you lose.
Therefore, methodology without discipline is worthless.
Tips at the end:
Write your methodology on paper – clear rules
Test it for at least a month before trading with real money
Keep a journal – like any transaction, how you feel, whether you are sticking to the plan
Be consistent – jumping from system to system is the fastest way to lose money
Summary – This Is Your Map Methodology
A trading methodology is simply a map. It doesn't guarantee you'll get there (we're not omnipotent), but it significantly increases your odds. Without a map, you're walking blindly.
Key points to remember:
Methodology = a set of clear rules that you repeat every day
Tools include support/resistance, moving averages, volume, and candlestick patterns
You need to select a timeframe and trading type (trend-following, support/resistance, )
You need to test the methodology on historical data (backtesting)
Without discipline and mental preparation, the best methodology is worthless
Ultimately, remember – the best traders aren't those with the most magical methodology. They're those who consistently apply it. Because in trading, as in any business, success is 10% strategy and 90% execution.
What trading methodology do you use? Do you build it yourself or borrow from existing systems? Tell me in the comments—I'd love to hear your approach and discuss what works in the real market
Finally, I'd like to invite you to the CST and CST PRO groups. If you're looking for a place to exchange experiences, analyze, and discuss markets with other traders, it's worth checking out.
There are experts there who truly teach analysis using various methodologies and support anyone who isn't yet comfortable with the markets and charts. The entire team is highly skilled—in my opinion, it's the strongest trading community in Poland.
I specialize in trading psychology, so you won't find highly detailed technical analysis on my website. I don't want to be another pseudo-advisor who "sells bullshit" and posts photos in a rented Ferrari. I stick to what I truly know, and they're strong in many aspects of trading.
Join the free CST group, and if you like it, try the paid CST PRO group. It's really worth it. I'm in both and I'm constantly expanding my knowledge.
