The only purpose for using Stops is to protect your capital. They are used either to cut losses or to protect profits. Stops are usually based on some dollar figure rather than a market indicator or price pattern.
A characteristic that stops share with exits is they force the strategy out of the market, which then requires a re-entry. We should give this re-entry caused from stops the same thought and attention that you would give a re-entry for exits.
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Usually, most trading strategies start with defining a signal to take a position in the market. To design the signal we use set-up and entry which have been described in earlier articles.
For the exits, in theory, we may use reversing of signal to define the exit. For example, if you use trend-following strategies and you enter a long position according to the set-up and entry tell you, then you me exit the market when the set-up and entry tell you to go short.
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Getting to know indicators and price patterns is the next step in designing trading strategy after making decisions on type of market and time frame to trade.
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After making the decision on what type of market you will trade as I talked about in previous article, you now come to the making decision as what time frame you will trade. This decision is also a important one when you are designing a trading strategy.
Firstly, you have to decide decide whether you will trade intra-day or not. If you trade intra-day, you will become a day-trader that means trading full time. It may be possible to trade intra-day while yiu have a day job but it is very difficult. So, I would not recommend that you to trade intra-day unless you can devote your full attention to trading.
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In designing a trading strategy, we will start with the big picture and dig deeper into more detailed decisions of the strategy in making decision. In the beginning, we will assess what type of market we want to trade and what kind of trader we want to be. Then, we will end up with how to decide on exits, and how we manage our money and risk by putting stops.
Pick the Market Type
The first decision you have to make is what type of market action you want to trade. Generally, there are three types of markets, they are derived from three distinct chart patterns that appear when there is a shift in market action. Each market type can be characterized by specific price activity. You should make yourselves familiar with the charts to be able to identify different market pattern.
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In previous article, we talked about the trading set-ups, which is the condition or set of conditions that are necessary prior to considering taking a position in the market. However the set-ups just make you aware that a trade is coming but do not get you in the market. So, what do we need in order to get in the market? You need the entry.
The entry is the technique that used to take a market position once the conditions for the set-up have been met.
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The Set-Up is the condition or set of conditions that are necessary prior to considering taking a position in the market. It may be the indicator or set of indicators that tell you to prepare to enter a trade. Set-ups just make you aware that a trade is coming but do not get you in the market.
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We make money trading when we sail with the market’s tide. We go long when the market is going up, and go short when it is going down. We do not sail against the tide or fight the market, we have to take a look that how market is and be harmony with it.
We do not fight the market. Fighting the market is not good because we likely to lose money if we fight the market. How much we lose depends on how well we are managing our money and risk.
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I have known some successful people and I used to wonder that why do they succeed? I have tried to find the answer. Then I have seen one thing that they have in common, they love what they do. Many of them even told that they cannot believe that they actually get paid for doing what they do. Many successful people will tell you that they would do what they do even if they were not paid at all.
So, I think I found the answer, SUCCESSFUL PEOPLE DON’T WORK FOR THE MONEY.
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As you may have read, I wrote an article to give you the idea what the strategy traders are. I also wrote another one to let you know a few benefits of strategy trading over other methods of trading.
And here, in this article, we are still talking about strategy traders. Actually, it is the complete strategy traders.
So, who are the complete strategy traders and what are the differences between the regular strategy traders and the complete strategy traders?
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| Quote | Last | Change |
|---|---|---|
| ^IXIC | 2905.66 | +45.98 |
| ^FTSE | 5901.07 | +105.00 |
| ^GDAXI | 6766.67 | +111.04 |
| ^FCHI | 3427.92 | +51.26 |
| ^N225 | 8924.39 | +92.46 |
| ^HSI | 20769.10 | +12.119 |
| ^STI | 2948.70 | +30.75 |
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