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Look Before You Enter

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Thinking of entering a trade?

 

1/ Wait.  Have patience.

2/ Expect.  Know what you are looking for.

3/ See.  Confirmation.

4/ Execute. Follow the plan.

 

It is good advice that novice traders (I still consider myself a novice) should choose one high probability setup and practice it over and over. Why? Because the two big problems of actual trading for the novice are psychology and execution (everything else can be got out of TA for dummies :). Concentrating on one setup will more quickly build up proficiency and confidence.

 

High prob setups are less common so you may well need to scan a number of charts, the important thing is to know what you are looking for.

What I look for is price action that is signalling the end of a pullback and continuation of a trend so I must see first a higher high and higher low (bull trend).

Then I look for a pullback.

Pullbacks occur due to profit taking while full reversals occur when counter trenders add their weight so I'm looking for weakening pullback bars (at 40-60% of the move up) that signal the ending of profit taking and absence of counter trenders.

 

I am then looking for a candle reversal pattern (pin bar in the colour of the trend being choice), and for confluence the pattern needs be at a significant level.

 

The best levels being a major or minor support level.

Major levels are the ones you draw every morning from the previous highs/lows.

A minor one is the level of the immediate prior high and often gets re-tested, it is the repetition of this process that creates the zig-zag pattern that typifies a trend.

 

Set stop and a reasonable target then sit back and have faith in probability.

 

So I am waiting for and looking for a lot things to come together but I know this needs to happen for the trade to remain high probability. I know the market repeats general patterns because I have seen them over the years but the market is like a living meme and will never repeat itself exactly and can confuse. If you have a high probability plan based on what price actually does, stick to it and execute it well, it must work (over time), but to learn to execute it well and overcome the psychological issues will take practice.

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Excellent advice  I follow a similar procedure and also still consider myself a novice, or at least by no means an expert or seasoned trader if not actually a beginner.  Various commentators on this forum have mentioned the dangers of arrogance and hubris in trading, this is also part of the psychology point for me.  This is also why I seek multiple scenarios and try to hone down to the one I feel is most likely and also why I seek contrary opinion, although I'd like to see more debate and disagreement on the forum.

 

The sequence you posted put me in mind of the Deming cycle of quality control (or actually continuous improvement): Plan; Do; Check; Act.  Although the first 3 parts of your sequence are really about planning.  I think that is right, especially for longer term traders who want to find an entry that they can stay in for a while.  So here is my tuppence worth on that:

 

  1. Plan: analyse the market until you feel you have an understanding of the long term direction and near term cycle and spot a decent entry point (several methods to do this including: Fibs; congestion zones; turn and pull back; tramline break and kiss backs etc.  Look for multiple scenarios and assess likelihood of each (try to eliminate you biases or at least understand how they influence your assessment).  Seek input from others and take the feedback as a gift.
  2. Do: Spot your entry point and have an outline of your intended exit point (this can evolve as you go) and enter with a stop that is sensible given the chart price actions and also protects your account (DO NOT MOVE the stop further away - take the hit and seek another entry)
  3. Check: monitor the market after your entry and move your stop to break even after the market moves a suitable distance away from your entry (rule of thumb like 100% - 150% is often used).  At this point your are almost risk free on your position and can enter another trade in terms of your overall account exposure.  If the market continues on the path you have forecast in the manner you expect then seek to add positions but if it does something unexpected then
  4. Act: re analyse and learn from the experience whether you win or lose (maybe especially when you lose).  What did you do wrong and why?  Was it an analytical error or a method error or psychology at work against you?

Keep doing this over and over on every trade and you will minimise your loss, maximise the chances of success and learn from experience and maybe become a true seasoned trader...

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