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 kids) and I also incorporate it into 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 your trading more descriptive of the antonyms of deliberate used in the thesaurus. Those would be words such as impulsive, unmethodical, unplanned or by chance, just to name a few.
In order to trade deliberately one must have a well-defined trading 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 trading strategy to use. Narrowing down all that information to a set of well-defined rules is the key to being methodical. One advantage that students at Online trading Academy have which is unique in the industry, is that they are taught a core strategy with very well-defined rules. Once that is done, applying the method in live market conditions to find the viability of the trading 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 trading strategy will do over long periods of time is an essential component. This is not only logical but builds confidence by executing the strategy.
The key elements for deliberate trading are identifying risk, reward and profit potential. Furthermore, a trader must have an understanding of the probability, the chance that the trade may work. This should be part of your trading strategy and 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 zone. The stop should be a few ticks beyond the zone since there isn’t any need for a wide stop at this point. A violation of these zone 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 solution 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 zone 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. Additionally, the location and structure of the level could give us a sense of high or low probability that the trade will work. In trading there are never any guarantees but only taking high odds trades will increase our batting average.
Some readers may think this makes sense, and perhaps sounds too simple, and it can be, but realize, the challenge is putting your trading strategy into real world situations. What I’d like to convey in this piece is that knowledge is important and it is a needed basis to get started, but at the end of the day deliberate application of that knowledge is the only way to monetize your results.
Until next time, I hope everyone has a great week.