Words have always fascinated me, their origin, meaning, and use in sentences. When I come across a word that I’ve never heard, or don’t know the meaning of, I immediately go to the Dictionary app on my phone to look it up. Once I learn the definition, I begin to incorporate it into my vocabulary (much to the annoyance of my wife and kids) and also in my writing.
One word that I think perfectly describes trading with a plan and discipline is “deliberate”. In most dictionaries, “deliberate” is defined as “carefully thought out, slow, careful, and methodical.” Other synonyms used are “calculating,” and “by design.” You see why this is such a great word for traders? Now, when thinking about your trading, is it deliberate? Or, is it more like the antonyms of deliberate used in the thesaurus. Those would be words such as impulsive, unmethodical, or by chance.
In order to trade deliberately one must have a well-defined strategy. This is an issue many traders struggle with, as there is so much information out there that it’s hard to figure out what to use. Narrowing down all that information to a set of well-defined rules is the key to being methodical. One of the advantages students here at Online trading Academy have that is unique in the industry, is that they are taught a core strategy with very well-defined rules. Once that’s done, applying the method in live market conditions to find the viability of the strategy is the next step. This is also part of the student experience, which is vital for learning. In addition, finding statistical evidence of how any strategy will do over long periods of time is an essential component. This is not only logical but builds confidence in executing the strategy.
The key elements for deliberate trading are identifying risk, reward and profit potential. This is to be done before the trade is placed. The most effective way to delineate risk is by placing a limit order closest to the point where we will be proven wrong. This is usually a high or low mark, at or near a supply or demand level. The stop should be a few ticks below since there isn’t any need for a wide stop at this point. A violation of these levels means the supply or demand was not sufficient enough to hold, therefore a small stop would suffice.
For those not comfortable leaving a limit order in the market, an alternative would be using buy or sell stops above the supply or demand areas once price has penetrated these zones. This is a conditional order that only triggers when price is touched, therefore, a buy or sell will trigger only when price leaves the level. The advent of technology has come a long way in facilitating the systematic execution of trades. This in turn can be very helpful in mitigating the emotions of fear and greed which are the main drivers of the mistakes made by traders.
The last step of this deliberate trading equation is defining the potential profit target. This can be done by using the opposing levels from which the trade is taken. In other words, if the trade is a buy, the profit target would be at the opposing supply level and vice-versa for the short. Others may use other indicators to project the profits, but in either case the risk-to-reward ratio should be wide enough to accommodate those inevitable losses. Using a limit order at this predetermined price would be the ideal way to be deliberate in this scenario.
Some readers may think this makes sense, and perhaps sounds too simple, and it can be, however the challenge is putting it into real world situations. What I mean to convey in this piece is that knowledge is great, we need it as a basis to get started, but at the end of the day deliberate application of that knowledge is the only way to monetize it.
Until next time, I hope everyone has a great week.