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One of the amazing things about trading is that in spite of how basic some ideas are, they are always news to beginners and even intermediate traders. In a sense, it is a reflection of how clouded the industry is with fakes and scams, although that has improved somewhat over the years.
One of the questions that gets asked a lot by traders (especially losing ones) is, “What is it I don’t know?”
Here are five simple things that all traders should consider in developing their strategies:
Setup conditions: What constitutes a favourable entry scenario for a trader and how will this be evaluated? For an overwhelming majority, the answer to the first part of the question should be “buying a pullback in an uptrend, and selling a rally in a downtrend”. Setup conditions merely describe a favourable entry environment, not the actual entry.
Trigger condition: The trigger is the actual signal that tells the trader that the environment may now be producing the trade desired. It is usually some kind of gesture price makes in the direction of the trade. This varies from moving average crossovers to divergence – take your pick!
Exit conditions: These conditions should encompass not just the stop loss, but targets, trailing stops and emergency exits.
Anticipated scenarios: Practically all trades will have to contend with upcoming support and resistance, or desired wave patterns. By having an anticipated pattern, the trader is able to notice when the market is NOT giving the desired pattern and control risk accordingly.
Money management: This one is a classic but simple solution – position size the trade according to the account.
Testing and tweaking the components of these five categories of conditions is what will ultimately yield an individual’s trading solution. Miss even one, and the strategy becomes significantly less viable.
With best wishes for your trading,
Kaye Lee
Private Fund Trader/Head Trader Consultant
www.straighttalktrading.com
“We take your trading seriously. You should too. Make It Pay.”
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