Identify the trade:
An effective trading strategy needs to be easily recognizable on a stock
or forex chart, and more importantly, it also has to be objective in
nature. A trader should ideally never be looking for a trade
opportunity, but rather the trade opportunity should present itself to
the trader without thought. If traders look too hard for a chance to
enter the market, then there is the possible danger that they could be
taking a trade for trading's sake, as opposed to there being a quality
trade on offer in the market. You need to take time which is
definitely required when scanning the market for entries and we must
also understand that if there is not a setup which meets our core
strategy parameters, then the trader should really just sit back and
do nothing. A quality strategy is comprised of the identification of
a low risk, high potential reward trade, with good probability for
success on its side. You need to have a scanner that will scan the
stocks that you select and give you the current price.
Traders need to think:
Once the trader has objectively analyzed and recognized their trading
setup or opportunity, it is now time to assess all aspects of the
trade in an effort quantify the probability of it working. In the
ongoing learning process, they typically call this phase the "Odds
Enhancers." Knowing such things as where your trade is placed in the
bigger picture trend, how large the potential reward is and what other
technical factors the opportunity has on its side, are all vital
ingredients in the perfect trading set up. Many times in the market it
is easy to identify a trade setup, which at first glance looks ideal,
however, when a further assessment is carried out, we may discover
that the potential for a trade is not quite as great as we first
thought. Always remember that a major part of any system understands
when one trade opportunity has more or less going for it than another.
Make the trade:
We have execution, the final aspect in the development of a solid and
consistent winning strategy. Without it, there will never be a trade
at all! After having identified our setup, then assessing its chances
for success, we then must know exactly what will be the criteria for
pulling the trigger and entering the position. Will you look for
confirmation when the price reaches your entry level, or will you
place an order ahead of time and be right at the front of the queue to
buy or sell? Both ways have their own advantages and disadvantages,
but it is ultimately down to the individual trader's taste to
determine what is more comfortable for him or her. Once we enter into
the trade, how will it be managed and more importantly, when will we
exit when or if we are wrong? Knowing how to set a stop loss. Often,
the most challenges in trading are found in this area or execution,
stop placement and trade management, you should know that while there
may be challenges in execution, there are also great advantages on the
other side. Without proper attention to the details on the execution
phase, it is unlikely that any consistency in trading will ever be
achieved.
Don't go crazy thinking that you need to go into a lot of
complicated Fibonacci ratios. This will only take one ratio and
everybody will be familiar with it. Here is a list the rules below
for setting this up and then show some charts with examples.
Create your supply or demand zone using your horizontal line
tool on your charts
Set your Fibonacci tool to only show the 61.8%
Supply zones – Drag the Fibonacci tool from the top of the zone to the
bottom of the zone
Demand zones – Drag the Fibonacci tool from the bottom of the zone to
the top of the zone
Allow price to trade into the supply or demand zone and either touch
or exceed the 61.8% line
Supply zone – Place a sell stop one tick under the low of the supply
zone
Demand zone – Place a buy stop one tick over the high of the demand
zone
Rules 6 & 7 become your entry price
Stops – can go beyond the price that touched the 61.8% Fibonacci level
Using these rules for entry allows the market to trade into the zone,
and when the market reverses and exits the zone, you will be stopped
into your position. This is the confirmation you may need on trades of
multiple touches of supply or demand zones. I like the 61.8% price
level, but feel free to experiment with other popular Fibonacci levels
such as 38%, 50%, etc. Remember, we are just looking for consistency
in your trading. Figure 1 will show a Lean Hog chart using this setup.
You can easily get caught up in an trade. The price pattern
you see "must" be a symmetrical triangle and you enter into the trade
"knowing" that it "is" about to move in "this" direction. Then the
tick goes against you and you feel a sense of panic and dread, you
haven't put a stop loss in and the price action makes a sudden and
dramatic move. You begin to use "hopium," the drug that traders grab
when the price action has moved in the opposite direction and they
begin to hope that it comes back. And, worse, they may double down in
order to get back to break-even. Later, they look at the trade setup
again and it looks nothing like the setup that they got into. In the
"excitement" to make the trade, the "reality" was distorted by the
greed of making more or the fear of losing again. In other words, the
results reflected the state of mind that they were in and this for so
many becomes a pattern that they play out over and over again.
Pull the trigger when stock or forex trading.
Try and analyze yourself are you placing to much on the value
on money or is it the fear of losing money. If you are struggling with
pulling the trigger and get out of a trade it could be a problem with
yourself or your trading style. The trading fact is, to some, losing
trades motivates a reaction to sit back and hope you don't get stopped
out in the stock or forex trade. Your natural response to a losing
trade is to quit and return to safe havens like mutual funds or
similar trading institutions. If you are trying to learn to pull the
trigger in a trade then the previous is a mistake.
Are you having a problem entering into a stock or forex trade
again not pulling the trigger. This usually happens when the trader is
not confident in the trade and the fear of losing creeps in. You must
learn to deal with losing trades and well as winning stock or forex
trades. It has been proven that the it is the trader's mental outlook
that separates the winning traders from the ones that lose money when
stock or forex trading.
You must learn from your losing trades. What caused you to
pull the trigger and enter the trade. Were you just chasing the trade
or trying to catch a falling knife.
You need to look honestly at yourself and your trading style to
understand why or why not you pull the trigger on a trade. The most
difficult thing to learn is to deal with the stress of losing money on
a trade and use your stop losses. Once you learn to deal with the
stress in your trades then pulling the trigger will become easy and
you will make some money in your stock or forex market trades. Make
sure you have a plan and set stop losses as well as take profits and
stick with the plan and pull the trigger
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