Trading With a Plan
There are a lot of people that claim you should trade whatever instrument lets you trade. While this may be true later on in your trading career I don't think it is a wise strategy early on. There are several reasons for this but the main one is it mimics over trading. In other words the day may work out very for you but chances are you will find yourself down quite a bit. Most people are not very good at battling back because your fear mechanism kicks in where you are afraid of more loss and hence you grab quick gains.
Here is what I do day to day.
First of all I do trade multiple instruments but that is because I have been trading for many years and loss generally does not bother me. Given enough time I usually end up profitable. That is not to say I haven't had my bad moments or years because I have.
These days I have switched from day trading the EURO dollar to trading Oil. There are acute reasons for this and most of it has to do with liquidity and volatility. Both are needed for short term profits.
You have often heard people say that they have a plan but most of the time it is either not a good plan or they desert it the moment something bad happens. Trading requires a lot of discipline and work. Lots of practice and lots of preparation. You need a good plan.
I start my day identifying what the market has been doing and where the bias of price action is. I really don't care about the news or what the pundits think. They are generally wrong anyway so why would I trust them. They don't have money on the line in most cases so it is just a guess like anyone else. Doing your own homework is the best way to go and don't over complicate it.
Know the stop loss zones. This is an area which best defines where traders have put their stops and where the shake out might occur. This is very important because it keeps you away from the herd.
You should know your profit area and stop before you enter. Not after.
You may wish to trade with other like minded traders if you like support and feedback and their are many rooms to choose from. The good ones are mostly free.
Look for the market ranges. For example in trading crude it moves in 50 tick increments.
why?
Traders usually put their stops 30 to 50 ticks away trying to take the volatility into effect. Look for the last 50 tick move and then determine where price may be moving to and why.
Use both 5 minute charts to 1 hour charts to get a feel. Understand that most candles are set ups for idiots.
Try not to trade against the daily trend which can generally be found on a 30 minute chart.
Wait for price to pull back 2/3 of the move before looking to enter.
Look for a good volume area that has been holding price for at least five hours.
Patience is the key. Wait for a good entry. Make sure that price is slowing down or likely to turn. Do not enter on a market price because of slippage. Enter using a limit order. Buy or Sell. If it is hit great if not there will be other trades.
Have a target in mind and where you are willing to protect profits. I look for ten to twenty ticks on each trade in oil. Therefor my protect profit area is 7 ticks. If price comes back and stops me out then that is it.
A small loss is always better than a big loss.
Should you keep trading when your target is hit. NO!
Take your profits and thank the stars and close your trade station. Plain and simple. Greed is the only thing that causes you to continue to trade and it can be a killer. Set clear profit goals and when they are hit get out. Over trading will only cause you to lose money and pay ridiculous commissions.
There are a few other rules I follow. However have your rules and stick to them. You can see the chart below where I took a short today in oil made my 16 ticks and got out. Yes the market continued to move down but my target was hit. Out. Period.
Here is what I do day to day.
First of all I do trade multiple instruments but that is because I have been trading for many years and loss generally does not bother me. Given enough time I usually end up profitable. That is not to say I haven't had my bad moments or years because I have.
These days I have switched from day trading the EURO dollar to trading Oil. There are acute reasons for this and most of it has to do with liquidity and volatility. Both are needed for short term profits.
You have often heard people say that they have a plan but most of the time it is either not a good plan or they desert it the moment something bad happens. Trading requires a lot of discipline and work. Lots of practice and lots of preparation. You need a good plan.
I start my day identifying what the market has been doing and where the bias of price action is. I really don't care about the news or what the pundits think. They are generally wrong anyway so why would I trust them. They don't have money on the line in most cases so it is just a guess like anyone else. Doing your own homework is the best way to go and don't over complicate it.
Know the stop loss zones. This is an area which best defines where traders have put their stops and where the shake out might occur. This is very important because it keeps you away from the herd.
You should know your profit area and stop before you enter. Not after.
You may wish to trade with other like minded traders if you like support and feedback and their are many rooms to choose from. The good ones are mostly free.
Look for the market ranges. For example in trading crude it moves in 50 tick increments.
why?
Traders usually put their stops 30 to 50 ticks away trying to take the volatility into effect. Look for the last 50 tick move and then determine where price may be moving to and why.
Use both 5 minute charts to 1 hour charts to get a feel. Understand that most candles are set ups for idiots.
Try not to trade against the daily trend which can generally be found on a 30 minute chart.
Wait for price to pull back 2/3 of the move before looking to enter.
Look for a good volume area that has been holding price for at least five hours.
Patience is the key. Wait for a good entry. Make sure that price is slowing down or likely to turn. Do not enter on a market price because of slippage. Enter using a limit order. Buy or Sell. If it is hit great if not there will be other trades.
Have a target in mind and where you are willing to protect profits. I look for ten to twenty ticks on each trade in oil. Therefor my protect profit area is 7 ticks. If price comes back and stops me out then that is it.
A small loss is always better than a big loss.
Should you keep trading when your target is hit. NO!
Take your profits and thank the stars and close your trade station. Plain and simple. Greed is the only thing that causes you to continue to trade and it can be a killer. Set clear profit goals and when they are hit get out. Over trading will only cause you to lose money and pay ridiculous commissions.
There are a few other rules I follow. However have your rules and stick to them. You can see the chart below where I took a short today in oil made my 16 ticks and got out. Yes the market continued to move down but my target was hit. Out. Period.
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