Optimizing Your Trading Style [Systematic vs. Discretionary]

There are various kinds of traders in the markets with numerous reasons that influence them to trade the way they do. From swing traders to day traders and momentum traders, beyond the goal of returning a net profit, they possess various motivations behind their methodology.

Some traders react only to their emotions and “gut feeling”. While other traders strictly base their strategy on charts or quantitative analysis. Some trade for the thrill of trading, without returning consistent profits, while others view it as a means to a life of financial freedom. In a market where each participant has different motivations, the only “right” trader is the one who is profiting.


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Define Your Style

Before we dive deeper into the two categories of trading, systematic and discretionary, let’s identify a few different types of traders, either based on personality or strategy execution. Some of which you yourself may be, or may have come across during your journey.

  1. New Trader: With a lack of market experience to rely on, they must focus solely on the information they initially come across. New Traders often rely on other traders through social media to guide them into successful trades. Having neither yet failed nor succeeded, they must remain vigilant in their studies of various methodologies. New traders typically have the right mindset but lack the technical ability to execute a trading plan with proper risk management.
  2. Scalping Traders: Trading on intraday time frames from 15 minutes into 4-hour candles, these traders have a unique and quantifiable market edge to consistently execute. Usually relying on past personal experiences or backtested data, scalpers are technically advanced in reading the tape and market structure.
  3. Ego Driven Traders: These traders don’t care about consistent profits as much as they do as appearing correct to their audience. Typically hidden behind anonymous profiles or extremely flashy personalities, they will delete wrong old posts and lie to keep up appearances. However, when they are right, they will make sure you hear about it for days.
  4. Long Term Trader (Investor): They only care about increasing their capital in the long run and are willing to be underwater in a position during the short term. They are confident in their investments and have a strong understanding of the fundamentals of the business and macro environment. They may use weekly charts to assist their entry and exits, but typically don’t chart daily.
  5. Greedy Trader: Always facing the risk of ruin, these traders usually have position sizes too big, or margin set too high, which results in the “blowing up” of their account. They typically trade with only the potential upside profit in mind, and not the potential drawdown. These traders will quickly learn to either remove their emotions while trading or face destruction.
  6. Trend Trader: These traders either buy high and sell higher or short low and cover lower. Often driven by momentum or a recent change in macro trends, they look like apostles to those who are unsuccessfully trying to trade against the trend. They often do well in the long run but lose their edge in bidirectional volatility, or during the early and late stages of a cycle when the price is rangebound.

Regardless of your trading style, all that matters is profiting over the long run. Remember that all sorts of personalities profit in the market, so it is your execution that matters most.


Optimizing Your Style

Eliminating emotions like greed and ego from your trading, while managing risk with proper position sizes and stop losses, will turn any style trader into a consistently profitable one.

Unfortunately, it’s not as simple as it sounds; Not everyone has the experience or time to dedicate to trading that would result in the financial freedom they desire. Many traders are only able to execute trades at their discretion during their lunch break at work, or between classes in school. Many of these traders integrate their own opinions and beliefs into the charts and then place trades based on those rules. While the guessing of a stock going up or down is a fun gamble, after a streak of bad luck or one big loss, you can find yourself second-guessing your entire strategy.

For most, becoming a systematic trader will maximize your probability of winning, especially if your system is measured via backtesting. Some systematic traders execute strategies entirely automated; they have a hardcoded system that takes the trader’s opinion out of the equation and self executes with a defined entry, exit, and position size.

The difference is immense between those who rely on their intuition and abilities in reading charts, and those who rely on backtested systems.


  • Discretionary traders execute without strict rules and trade whatever asset they think looks good at the time. Systematic traders have a list of strict rules that covers entries and exits as well as risk management.
  • Discretionary traders operate based on their own experiences and biases while systematic traders have no opinion and simply follow market data.
  • Discretionary traders take losses personally due to ego, while systematic traders know that a loss is part of the game and their defined edge will help them profit in the long run.
  • Discretionary traders are using all the data they can find at the time to make the best decision they believe they can make. Systematic traders establish execution rules based on consistent data flow from consistent sources, only incorporating additional data if it assists in signal optimization.
  • Discretionary traders execute trades whenever they find data to support their beliefs. Systematic traders may find the execution timing of discretionary traders to be random when aligned to the underlying data set.

Using a systematic trading method removes the weakest link, yourself, in your connection to trading the market. Without greed, fear, and ego, a trading system strips away the noise and produces clear signals using previously established parameters.

By being systematic, you eradicate certain emotional issues in trading. Relying on a system removes your second-guessing as you no longer need to anticipate the next steps in the market. This allows you to transition from simple trade execution and prediction to an architect of a system that will predict for you.

Becoming a trading system architect reduces the daily stresses of forecasting the markets, and allows you to think clearer during times of volatility, as you just focus on refining the system. During the system architecture phase, systematic traders exercise their discretion for creation, but are robotic during execution when the system is fully completed.

As discretionary traders attempt to absorb what fundamental knowledge and news mean, systematic traders usually derive signals from the actual stock price changes. Systematic traders do not consider or anticipate what the market would do; they respond to what the market does on the basis of their preset signal system.


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Defining Your System

A trading system is a series of criteria to calculate cues for profitable buying and selling, often analyzed by a backtest. Trading systems are the backbone in the execution of a trading method, which is based on set parameters within a specific timeframe. When such parameters are triggered, your system will execute with a previously set position size and risk management parameters that will increase your chance of long term profits.

Several elements can be calculated in a trading system:

  • Entry & Exit signals
  • Win/Loss ratio
  • Risk to Reward
  • Profit Factor
  • # of Executed Trades
  • Expected Return
  • Average timespan of a trade
  • Drawdown

Based on a historical analysis of price action, you can quantify the conditions of how the entries and outputs will be implemented. The system advises you what to buy, how much to buy, and how to handle your positions as price changes.


Avoid Doing This

Making just a few mistakes can turn a highly profitable system into a trading nightmare. When you have established set parameters based on your historical data, stick to them.

Here are several errors traders often make while executing their trading system:

  • Failure to keep your losses small; abide by your trading systems risk management strategy, including position sizing and stop losses.
  • Getting discouraged during big drawdowns and shutting down your system; they are bound to happen no matter your strategy.
  • Adding your own emotions and opinions into the previously defined entry and exit parameters; you developed a system specifically to remove those two biases, so stick with it.
  • Disbelief in your methodology; believe in yourself and your system, you didn’t run all those backtests for no reason.
  • Over-optimization; just because your system looks great on historical data, does not mean it will forward test well.

Over the long run, it is hard work, perseverance, and consistency that create profit, not assumptions, guesses, and gambling.


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You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on the Site before making any decisions based on such information or other Content.

In exchange for using the Site, you agree not to hold PurdyAlerts.com, its affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other content made available to you through the Site.

There are risks associated with investing in securities. Investing in stocks, bonds, exchange-traded funds, cryptocurrency, mutual funds, and money market funds involve risk of loss.  Loss of principal is possible. Some high-risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including greater volatility and political, economic and currency risks and differences in accounting methods.  A security’s or a firm’s past investment performance is not a guarantee or predictor of future investment performance.

It Doesn’t Matter

There are a lot of things to focus on when learning to trade; following the daily news flows and sentiment changes, learning to read the tape, and figuring out what the price action really means are just a few. Luckily there are a couple of things you don’t need to think too hard about because they really don’t affect your long-term success as a trader.


Your stockbroker selection does not matter as long as they offer speedy execution with limited slippage and fees that are average or better. Your broker has little to do with your long term success unless you require unique features like ultra-low latency connections for high-frequency-trading, or a specialized trading product. In competing with Robinhood and eToro, many top brokers now offer commission free trading, feature rich mobile apps and desktop trading platforms, as well as easy access to margin, reducing the drastic differences between retail brokerages that existed just a few years ago.


If you continuously trade with a position size that is too large for your account, it’s doesn’t matter how much your brokerage account has grown, you will likely give it all up in the long haul. If you can’t manage risk via proper position sizing, your trades only matter till you blow up your account as you continuously face a risk of ruin; so in the long term, your short term gains might not matter.

What you withdraw from your brokerage account over time matters, not just how quickly you grow your brokerage account without making capital withdrawals. If you lose all your money in the next bear market, it does not matter how much profit you generated in the previous bull market. The expertise that counts is the ability to realize your unrealized gains and pull capital off the table because it’s still there.

If a farm raised turkey is slaughtered on day 1,001 for Thanksgiving, is it still appreciative of the first 1,000 days getting plump? While it may have been happy to have lived a great 1,000 days, I’m sure it would rather go on to live for several thousand days more without facing an unnatural risk of ruin. Remember that trading is a marathon, not a sprint.


When you have not established your edge, your trading strategy does not matter. If you can not identify your trading edge, validate it, and execute it over and over again, your attempt at systematic trading is worthless. If you don’t have trading rules, the trades you execute don’t matter, they are all rule violations. You can not quantify a long term plan towards success if you have not run backtests on your strategy to know how it performed in the past.

Don’t mistake ability, with randomness, luck, or just a strongly trending market. Outside the context of a trading system, no single trade matters in the long term. Without the background of a systems’ performance on assessed data, any single trade could just be as random as the flip of a coin.


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This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. All Content on this Site is information of a general nature and does not address the circumstances of any particular individual or entity.

You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on the Site before making any decisions based on such information or other Content.

In exchange for using the Site, you agree not to hold PurdyAlerts.com, its affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other content made available to you through the Site.

There are risks associated with investing in securities. Investing in stocks, bonds, exchange-traded funds, mutual funds, and money market funds involve risk of loss.  Loss of principal is possible. Some high-risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including greater volatility and political, economic and currency risks and differences in accounting methods.  A security’s or a firm’s past investment performance is not a guarantee or predictor of future investment performance.

The Logistics of Market Pricing

Stock market prices, contrary to the widespread assumption of many, are not related to fundamental models or to the business that has sold shares in order to raise funds. Market prices are actually what the latest sellers and buyers are willing to trade for at the time. Since this is how the price is established, what are the rules behind the change in market prices?

Economic laws control the flow of prices in the market. The legendary trader and market pioneer Richard Wyckoff summarises three principles that capture what creates the existing price and what changes it.


Supply and Demand

The market goes up and down to balance the equilibrium between supply and demand. 

The imbalance of buyers over sellers causes the price of a stock to rise. The surplus of sellers over buyers allows the price of a stock to go lower. But sellers and buyers are always equivalent, there are no more buyers than sellers, and prices change until the next buyer is able to purchase from the next seller on the market.


Cause and Effect

The supply and demand equilibrium may be altered by a catalyst.

Good corporate news, or bad news about the industry, or robust macroeconomic conditions may be the catalyst. The reality of how this news influences future prices, however, is the true cause.

Increased demand for the stock will be generated by a presumed positive event, hence a good effect aka. stock moves up.

Inadequate demand for the stock will be generated by a presumed negative event, hence a bad effect aka. stock moves down.


Effort and Result

How much volume (effort) is related to the movement for a stock price to change (result).

The pattern is likely to continue when the output (price) and activity (volume) are in equilibrium. However, if, for example, they are out of step when the volume is high, but the price barely moves, the trend is at risk, and protective steps should be taken.


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Trend Trading with Market Volatility

Volatility, not anxiety, should become a source of wisdom.

The up and down essence of the stock market is volatility. As stocks always do move up or down, your trading plan must be prepared each and every day to deal with volatility. From high volatility to low volatility, assets trend differently. Although volatility must be compensated for by a trader when it comes to position sizing and distance to stop losses, it should not be treated as detrimental to an opportunity. To have trends that traders can make money on, we need markets to rise or fall and not remain flat.

While many investors appreciate volatility and require it to transact in their timeframe, it poses as many dangers as opportunities. You will make a lot of money if you are on the right side of volatility while being on the losing end can cost a fortune.

Top Volatility Hazards:

  • Volatility can cause a stop loss to trigger, only for the price to go back in favor of your old position
  • If you trade on the long and short side of the market, being on the wrong side of the market twice as it swings rapidly in both directions, can double the losses quickly.
  • Losses can be higher than usual and, even if using normal position size criteria, movements can be several times greater than expected based on past fluctuations.
  • Volatility could overwhelm traders emotionally and create even more pressure for market participants that they avoid trading or investing whatsoever.
  • Volatile market movements may lead traders to engage in a strategy across time frames and processes that they normally do not trade and don’t have an edge trading.

A better option than to hate volatility is to control your trading against volatility. Risk mitigation is a critical pillar in the preservation of capital.

Volatility, not anxiety, should become a source of wisdom. During the most unpredictable markets, the greatest trends can appear. During periods of instability and at market tipping points, volatility grows. When a trend is formed, volatility will decrease.

Volatility isn’t on the downside only. Stocks can change by moving both up and down in a large price range. One way to think about upside uncertainty is as such: imagine a market that is rising. At $100, you enter, and the price rises to $150. Then the price drops to $125. Is this extremely bad? Not, likely. Since the price could then suddenly jump to $175 after going from $100 to $150 and then slipping down to $125. This is volatility in motion to the upside. If a stock is always producing higher highs or lower lows as it bounces within a longer-term cycle, volatility may be a good thing.

Trend traders have higher upside volatility and lower downside volatility than conventional stock indices such as the S&P 500 since, with predetermined stop losses, they exit losing positions quickly. As they constantly aim to see how their entrance into a market pans out into a larger macro trend, they deal with several minor losses. By cutting a trade that has advanced against a trend traders’ stop-loss limit, they minimize the amount of harm that volatility will do to their portfolios.

Tips on Trend Trading:

  • Volatility will aid you in establishing the size of your positions and the placement of stop losses.
  • Average True Range (ATR) and the VIX are a few powerful volatility metrics.
  • In a market, volatility is a metric of motion and risk is the sum of money you will lose when a trend goes against you.
  • In a winning trade, you have to lose some of the unrealized profits to be able to gain greater profits in a longer-term pattern.

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Defend Your Trading Capital [Using Money Management Ratios]

Many traders focus on managing trade entries and exits, seeking alpha. Most traders learn the hard way after having trouble with pressure, impulses, and ego force them not to execute their trading plan. Risk management generally is learned last, after discovering the impact that lost capital can have on confidence. 

It takes increased effort to return to breakeven if you keep trading your base capital away. You need a +11.1% return if you’re down -10% to get back to even. Throw yourself down -20%, and render yourself complete again with a return of +25%. When you lose -50% of your overall trading account you need to double your money with a return of +100% just to get back the way you came.

Returning +1% on your total capital ten times to get a return of +10% is better than trading big trying to get everything at once. When you lose 5 times in succession when risk 1%, you’re down -5%. If you’re going to risk 10% on each trade and lose 5 times in a row, you’re going to be down -50%.

No trade should endanger your entire portfolio, and your first drawdown should not be able to wipe you out. Can your current position size withstand a losing streak of five trades?

Your risk/reward ratio is another key metric in money management. To risk $100 for the chance of earning $300 or $500 is a good trade, and you can will just half the time and still be profitable. To gamble $1,000 to gain $100 is a poor trade. One loss takes out ten winners profit, even if you lose money with a win rate of 90 percent. You want to gamble a little for the chance to make a ton.

Proper position sizing and stop-loss placement are two of the best tools for money management.

  • A trade risking 20% of your overall capital allows for a 5% stop loss, which equals 1% of the total trading capital.
  • A trade risking 10% of your overall capital allows for a 10% stop loss, which equals 1% of the total trading capital.
  • A trade risking 5% of your overall capital allows for a 20% stop loss, which equals 1% of the total trading capital.

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Recovering From a Bad Trade

Understanding the delicate balance between your level of comfort and uncertainty against a specified time period is the secret to any successful investment plan.

The balance between risk and reward will determine the type of investment strategy that you will take.

A more aggressive approach can be taken by those who start investing early on. This strategy seeks to beat the dollar inflation rate. Those who are investing later in life will follow a conservative approach to minimize the volatility of their portfolio.

Regardless of your risk and rewards profile, a good investment portfolio needs diversification. Even though this reduces volatility, no portfolio is protected against risk or loss.


Here are some wise steps to follow after suffering from a major loss or losing streak:

Admit Fault

Was your recent loss your largest? Is this your first major loss? If that is the case, make sure to own up to it. Losses happen to every trader regardless of the experience level.

Don’t just brush it away. Learn from your mistakes and don’t jump back in until you’ve reviewed the lesson.  Don’t just blame your loss on market volatility, study what happened.

Evaluating your actions objectively and assessing the results of those actions will allow you to make smarter trading decisions. Learn from it, despite the difficulty of trying to counter the effect of this failure.  Doing so can prevent small losses from turning into a huge drawdown.

Take a Break

Stop trading when a bad trade with significant effects happens.  We will immediately begin to use ego and emotions to negate our significant loss. When you are emotionally involved, finding a better trade will only lead to more losses.

Step away from the trading screen instead. Find out how your problems can be fixed. This can be a quick run around the block for some, a yoga class for others. Determine the best method for removing negative emotions from your atmosphere.

Stop trading for a couple of days. Alternatively, do paper trading until you are profitable again. Doing so may clear up any mental and emotional barriers left behind from the bad trade.

Concentrate

Use the bad trade as motivation after you have cleared your negative emotions. Keep your position size small when you return to trading to prevent emotion from returning the next trade.

A disciplined measure is to get back to a trading performance similar to prior that of your bad trading day. After a bad loss, acquire safe steady gains and recreate a newly profitable investment strategy at a proper speed.

Make a Plan

Make a detailed action plan for future trades after finding your concentration and building your confidence.  Set limits in your detailed plan of action. Since most bad trades can be definable due to market activity, recognize the variables that can be measured. This can include technical patterns, fundamental events, or any dynamic price driver.

For instance, gold price increases when the stock market declines. In times of economic recession and inflation, many investors see precious metal trading as excellent insurance against the dollar’s weakness.

Your new trading plan should benefit as a result of your bad trade.

Recognize The Context

Experienced traders know that losses are part of the routine in a market. Inexperienced traders, however, may trade because of the humiliation and the emotion of a bad prior trade.

Keeping this loss in perspective is essential. Recall that this is simply a bad trade, in a risky market. Moments like this are critical for self-reflection. Bad trades should remind you of the many-other successes you have had along the way through the volatile market.

There is a lesson in financial losses, much like other aspects of daily life. Your bad trade may just be the loss-lesson you need to hone your trading strategy.

Without risk, there is no trade. Quantifiable key market actions determine the outcome of a trade. Despite this, there will be a loss. It is how you learn from this failure and improve that decides your performance.


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5 Powerful Candlestick Chart Patterns

Candlestick charts are an analytical technique that transforms data into single price bars over multiple time frames. It makes them more valuable than conventional open-high, low-close bars or lines that link the closing price points. When charted, candlesticks generate trends that forecast price action. Proper color codes add depth to this technical tool first built by Japanese rice traders in the 18th century.

In his popular 1991 book, the “Japanese candlestick charting techniques,” Steve Nison brought candlestick patterns to the west. Now, many traders have the opportunity to identify dozens of these patterns, with names such as harami, spinning top, and three white soldiers. Single bar styles, including the Doji and the hammer, were integrated into hundreds of trading strategies in both long and short strategies.


Reliability

Not all types of candlesticks work really well. Their immense success has diminished efficiency, as hedge funds and their algorithms have deconstructed them. Many well-funded companies rely on high-speed execution to compete against retail investors and conventional fund managers who execute strategies from technical analysis found in traditional texts.

In other terms, operators of hedge funds employ algorithms to manipulate investors looking for bullish or bearish scenarios at high odds. Reliable trends continue to appear, however, creating incentives for the short and long-term.

Here are five examples of candlesticks doing extremely well as price guidance and momentum predictors. Each works in predicting higher or lower prices in the context of surrounding price bars. They are adaptive to time in two respects. First, they operate only in the boundaries of the chart, whether intraday, daily, weekly or monthly. Second, after completion of the pattern, their effectiveness declines steadily after three to five bars.


Top 5 Patterns

The study is based on the work of Thomas Bulkowski, who in his 2008 book, “Candlestick Charts Encyclopedia,” created output rankings for candlestick patterns. He gives figures for two kinds of predicted trend results: reversal and continuation Candlestick reversal trends forecast price changes, while continuation patterns expect an extension of the current price path.

The hollow white candlestick corresponds to a closing print higher than the opening print in the following examples, whereas the black candlestick refers to a closing print lower than the opening print.

Three Line Strike

The reversal pattern of the bullish three-line strike throws out three black candles in a downtrend. Each bar is lower and closes close to the bottom of the intraday candle. The fourth bar opens much lower but reverses in a wide-range closing above the top of the series first high. The first print of the fourth candle should mark the bottom of the fourth candle. This reversal forecasts higher prices with an accuracy rate of 84 percent, according to Bulkowski.

Two Black Gapping

After a remarkable peak in an uptrend, the bearish two black gapping reversal pattern emerges, with a gap down which generates two black candles with lower lows. This trend suggests the downturn will continue lower, possibly triggering a broader downward trend. This pattern forecasts lower prices with an accuracy rate of 68 percent, according to Bulkowski.

Three Black Crows

The bearish three black crows reversal pattern begins at an uptrend’s peak, with three black bars marking lower lows closing close to intrabar lows. This pattern suggests the fall will possibly trigger a larger downtrend. The most bearish iteration begins at a new high as it traps investors into pursuing momentum. This model forecasts lower prices with an accuracy rate of 78 percent, according to Bulkowski.

Evening Star

The reversal sequence of the bearish evening star begins with a tall white bar bringing an uptrend to new highs. The market gaps up, but fresh investors do not emerge, resulting in a candlestick with a narrow range. A break down on the third bar completes the sequence, suggesting that the downturn may continue lower, triggering a downtrend on a broader scale. This model forecasts lower prices with an accuracy rate of 72 percent, according to Bulkowski.

Abandoned Baby

Following a series of candles printing lower highs, the bullish abandoned baby reversal pattern emerges at the bottom of a downtrend. A small market gap occurs, but fresh sellers do not emerge, resulting in a small Doji candlestick. A gap up on the third candle suggesting the turnaround would proceed to be even bigger, potentially causing a larger uptrend. This model forecasts higher prices with a precision rate of 70 percent, according to Bulkowski. The bearish abandoned baby forecasts lower prices with a rate of 69%.


Conclusion

Chart patterns catch market players ‘ interest, but many reversal and continuation signals generated in the current electronic trading environment do not perform reliably. Luckily, Thomas Bulkowski’s statistics show extraordinary precision for a narrow set of these trends, enabling traders to buy and sell on these indications.


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It’s Beyond Your Control [As A Trader]

Regardless of how much a trader thinks they can predict the future, how powerful their confidence is, or how much they believe, no particular trader or investor can dictate the outcome of a market unless they have sufficient capital to push that particular market. Traders have an exceptional disappointment that few other professions have, a shortage of real market influence.

A trader is unable to control:

  1. Price movements
  2. How a trade works out

When a trader enters the market, any following price movement is based on market participants’ collective actions not any individual’s own opinions, hopes, and beliefs. While a trader can manage a trade via position size and exit strategies, he can not determine whether his stop loss or profit level is hit. A trader is at the market’s mercy to choose the future of each of their trades.

But sometimes the trader does have some control…

A trader can control:

  1. When to enter a trade
  2. The use of a trailing stop if the trade goes their way
  3. When to hold all cash in the portfolio
  4. The technical indicators used for signals
  5. Price targets from which profit will be taken
  6. What lesson is to be learned from each trade
  7. Their watchlist and which markets and products they will trade
  8. The exit strategy and point of invalidation
  9. Position sizing for every trade
  10. How emotions are dealt with

You can’t control what price action will be, but you can control what you will do in response to the price action and how each trade plays out. You control how your position size and entry before you’re in the trade. You also control when and how you will exit the trade. 

You cannot control the markets, but you can build the discipline to control yourself.


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A Traders Best Friend [30 Trading Journal Questions]

“What’s measured improves”
― Peter Drucker

Maintaining a trading journal is a smart strategy to increase efficiency and build trust in actions. Day trading performance requires high coordination and preparation level. Day traders need to go through a rigorous educational process to be consistently successful in trading.

The best tool for directing and managing the framework of a day trader is by using a trading journal. When you intend to become a successful trader by efficiency, trading journals will lead you to a lucrative future sooner.

Here’s some of what your trading journal should document:

Before you start trading:

  1. Your expectations for return. 
  2. Your requirements for position sizing.
  3. Your per trade risk tolerance and tolerable drawdown.
  4. Overall risk tolerance and correlation rules related to total portfolio positioning.
  5. What are the results of your backtested signals or fractals in this situation?
  6. The risk/reward ratio for each setup.
  7. Your watch list and the reasoning for each asset. 
  8. Your entries, exits, and stop-loss levels per potential trade. 
  9. The average trading volume of each asset for the relevant time period. (add’l Screenshot of Level 2)
  10. Calculate your risk of ruin. 

During/After each trade:

  1. Record your chart on entry. 
  2. Your entries and why, at that point, you chose to enter. 
  3. Position size and reasoning. 
  4. The stop-loss plan in case of trade invalidation. 
  5. How will you take a profit? At what level? 
  6. Any regrets?
  7. Did you believe in your long-term signals to make money?
  8. Is your risk/reward ratio consistent to original? Update it now.
  9. Record your chart on exit.
  10. Is your trading system in line with the current market trend or your beliefs about it?
  11. How did you feel after entering the trade? Are your expectations consistent with your original?
  12. What did you feel when you exited the trade? 
  13. Were you happy with your trading execution?
  14. What execution mistakes have you made?
  15. Anything else you could have done to mitigate risk?
  16. Anything else you could have done to maximize your trade profit?
  17. Have you trusted in yourself to execute your plan?
  18. Are you trading in a timeframe that is psychologically comfortable?
  19. What was your level of stress throughout the trade?
  20. During each point of the trade, what were your thoughts?

Go look and see what you’ve done at the end of each week and month, recognize common issues, and identify your strengths. Such findings will help you take advantage of your abilities and demonstrate the places where you need to focus on.


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Trading Made Easy [Using Price Action]

There are a lot of decisions people make going into a trade. We will trade on our interpretations of the strength of businesses or macroeconomic patterns of a country. Individuals can do trades on the basis of their own opinions, forecasts, estimates or personal views. Psychological mistakes, such as fear of missing out on a move, envy, or pride, can also contribute to trading decisions.

But there’s a better way of doing business.

With a price action strategy, the trader’s decision is made up through the current price movement.

  1. The market is in an uptrend with higher highs and lows. A downward trend is characterized by lower highs and lower lows. Trading is considered range-bound when price trades within a specified price bracket. Defining which market category you are in will allow you to reduce friction when trading.
  2. The current trend can be shown through how market price reacts to the moving averages of appropriate time frames.
  3. If the market is showing movement in one direction, the MACD will quantify it based on the direction of the crossover signal.
  4. Typically a breach of a previous trading range implies the price will move in that direction.
  5. An entry is positioned where the price reaches a fixed trigger signal. To have any sort of market edge, It must depend on a historical pattern that generates bigger wins than losses.
  6. A market is generally heading towards a price gap.
  7. The best-case scenario is a profit target where the price will trend before the chances of additional profits decline. In your trades, your profit target sets your reward level.
  8. A stop-loss reflects a price level not to be achieved if the trade works for you. You admit to being wrong at this price level and taking a small loss before it becomes a huge loss and the chances of profitability turn against you. The stop loss of your position together with position size represents the risk of the trade.
  9. If a market has moved too quickly in either direction, the RSI will signal it. The risk/reward ratio of long positions at the 70 RSI can be decreased and a short position can be similar to reversal higher back at a 30 RSI.
  10. It is a sign of high volatility thus increased risk when the price range expands twice as much as it has been trading. Trading smaller positions is usually the proper move.

The reality is that everything pretends to know something but the current price action is the truth.


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