Anyone who has dipped a finger in the fascinating world of trading, must have heard traders and mentors always saying Keep It Simple!
On the other hand, with thousands of indicators, strategies, press releases and every trader and mentor saying something different, how can you manage to reduce all that information and Keep It Simple?
So, what do I mean by keeping it simple?
Just like every person is an individual and enjoys different things, so it is in the world of trading. The fact that certain strategies may work very well for others does not necessarily mean that they will suit you and visa versa.
A successful trader, is a trader that has found the strategy that suits him individually, a trading strategy that he feels comfortable with at all times and then he will repeat the same strategy again and again.
Keeping it simple when trading simply means focus on four major steps:
Risk/Reward Ratio assessment
- Know your Exit
Finding your Set-Up –
In order to be a successful and profitable trader it is essential to find the trading strategy that works best for you. In the sea of ever changing conditions, you need to be able to filter out the relevant from the non-relevant.
Every trader's set-up will be different, for example: some traders like trading after Gap prices, others prefer Scalping, some may find that the profit mostly with the Triangle Breakouts and others just can't get enough of the Shooting Star trading method.
Since the various trading patterns typically occur at certain hours of the trading day, choosing a personal trading set-up will automatically reduce your trading hours to minimum.
By having a set-up, you Keep your Trading Simple! You do not need to concern yourself with whatever is going on the news, rallies, price falls etc.
As long as the precise conditions for your set-up have not yet materialized, you do not need to concern yourself at all. Only when your trading set-up has begun to form itself you may begin to focus on the other steps.
The Trigger –
A trade trigger is an event that occurs following a trade set-up that lets you know it's time to open a position. Once your specific set-up has occurred and you have valid it, this is when you must turn your attention to where/when the trade trigger is.
Risk/Reward Ratio Assessment –
O.K., now a stock has formed the set-up you feel most comfortable with, you have identified your entry trigger, now it is time to determine if to take the trade or not.
At this point you must determine if the Risk/Reward ratio is worthwhile. If the potential profit is appropriate compared to the risk, take the trade. If not, go back to the charts and look for an alternative Set-Up.
Don't forget that economic or specific company news events have to be considered as part of the Risk/Reward assessment.
Since we cannot predict how the markets will react to certain economic releases, it is always advised to check an economic calendar before your trading session begins and take a few minutes break before or after high impact economic or specific company data releases.
Know Your Exit –
Even more important than knowing when to enter a trade is knowing is your Exit point.
In this third step you have already defined your worst-case scenario exit, the risk you are willing to take – Your Stop-Loss Order.
The problem with a lot of traders, that prevents them from becoming not only successful but profitable as well, is that they do not have a proper exit plan if the trade does go their way.
If you want to be a profitable trader and not only successful on paper, you must define your take profit goals according to your trading strategy up ahead and always act by them. Once you are in a trade your emotions may affect your decisions. this will cost you a lot in the long run.
The Trading arena is very volatile and may be overwhelming at times with massive amounts of news flooding in all the time. This is why you as a trader need to find your own trading haven, your own trading style that will allow you to disregard all the chaos and sleep well at night.
Once you have found the trading style and Set-Up that works best for you, all you need to concern yourself with is that specific Set-Up. Only when the set-up has materialized, do you need to consider the trigger, risk/reward ratio and take profit plan.
Till next time, Trade Simple….