My 10 Rules before Taking a Trade.
Updated
1 : Dessiner les Niveaux clés et la Tendance.
(a) Trend and Supports/Resistances Majeures. (12-16x timeframe)
(b) Trend et Support/Resistance on shorter term(6 or 8 time short). Draw the most recurrent Fibonaccis retracements or/and extensions.
(c) Check Action Price on your trading timeframe. Draw short-term fibos.
2: Find a Signal
Only valid on KEY LEVEL.
Ideally respect the trend, with exception of reversal trades.
No signal. STAY FIAT.
Ignore Signals if :
-Low volume.
-Complex retracement.
-Sloppy action price.
3 : Find Confluences.
Is this scenario direction or targets the same if i use different projections? Different Bias? Does market profile validate my fibo support?
Confluences help classify your potential setups by quality and help reduce exposure and overtrading.
4 : Plan the trade.
We have the entries, the targets. Congrats that was the easy part, now you need to find invalidations, partial profit targets and when to rise your stops. For advanced trader, time to plan your time related stoploss, potential re-entries and how you plan to ladder your entries.
Reminder : The closer your stop is, the best is your ratio and so are your earnings, in the long game, ladder entries will boost your profits.
5 : Calculate your REALISTIC Risk/Reward.
No volume on the breakout of your triangle? no reaction on your fibo level? Trump is on a twitter fury and excite the dumb money.Most of the trades are not gonna go like you planned, you're gonna need to get out or reduce your exposure for many reasons.
Being optimistic is good day to day life, when trading it's the opposite. Be Honest and Pessimist.
6 : Define Sizings and Maximal Exposures.
Up to you, i personnally use 1% for my best setups, when i'm not so confident or trading an aggressive setup probably more like 0.3%. I usually ladder my entries with 4-10 positions. Still working on it.
Reminder : A drawdown >25% brings a risk of ruin between 0.5 to 1%. My 10 years experience in risk/reward management 2 cents. This one percent HAPPENS. A human common bias is considering small percentage as irrelevant. They are very relevant, get other this bias.
In my opinion :
<1% risk per trade is MANDATORY if your capital is consequently above your cash flow.
1-3% if you cash flow afford you to rebuild your capital quickly.
>3% if you are masochist.
7 : Mental check-up
Am i calm? Do i want to trade this setup logically or am i pushed by Greed or desire of Revenge? What are my recent results? Am i emotionally involved? What are my recent results?
Winning Tilt : Care of Overtrading, loose Stop losses, passing by mandatory partial profit.
Losing Tilt : Care of Stops too tight, freezing and undertrading.
8 : Accept uncertainty and pending loss.
A drawdown is normal even to very successful traders, for exemple with 50% success rate, you are gonna frequently have a 16 consecutive losing streak. Why this trade would be exceptionnal? Don't take this trade if you are not ready to lose 16 times your stop without blinking, without complaining. If you find yourself doing that, then it's a sign you are too exposed. you DON'T HAVE to risk 1% per trade, especially if you haven't proved you are a winning trader with a long history of profitable trades. Accept this trade is almost irrelevant and part a of a bigger picture. A lifetime of profitable trades that are going to increase your capital. No more no less.
9 Backtest before exposing yourself.
Is this trade part of my bigger plan? Am i in my confort zone? Am i factually profitable with that sort of trades? If yes, Green Light.
If no, don't panic, this work is not worthless. It is very valuable to open ourselves at other technical analysis, other instruments. But no so recommended to burn some bills on it. Time to Paper test this setup, or trade it on a demo account. Make stats on it, is it better than your actual strategy? Yes, you just made yourself richer? No?Smarter then..
(a) Trend and Supports/Resistances Majeures. (12-16x timeframe)
(b) Trend et Support/Resistance on shorter term(6 or 8 time short). Draw the most recurrent Fibonaccis retracements or/and extensions.
(c) Check Action Price on your trading timeframe. Draw short-term fibos.
2: Find a Signal
Only valid on KEY LEVEL.
Ideally respect the trend, with exception of reversal trades.
No signal. STAY FIAT.
Ignore Signals if :
-Low volume.
-Complex retracement.
-Sloppy action price.
3 : Find Confluences.
Is this scenario direction or targets the same if i use different projections? Different Bias? Does market profile validate my fibo support?
Confluences help classify your potential setups by quality and help reduce exposure and overtrading.
4 : Plan the trade.
We have the entries, the targets. Congrats that was the easy part, now you need to find invalidations, partial profit targets and when to rise your stops. For advanced trader, time to plan your time related stoploss, potential re-entries and how you plan to ladder your entries.
Reminder : The closer your stop is, the best is your ratio and so are your earnings, in the long game, ladder entries will boost your profits.
5 : Calculate your REALISTIC Risk/Reward.
No volume on the breakout of your triangle? no reaction on your fibo level? Trump is on a twitter fury and excite the dumb money.Most of the trades are not gonna go like you planned, you're gonna need to get out or reduce your exposure for many reasons.
Being optimistic is good day to day life, when trading it's the opposite. Be Honest and Pessimist.
6 : Define Sizings and Maximal Exposures.
Up to you, i personnally use 1% for my best setups, when i'm not so confident or trading an aggressive setup probably more like 0.3%. I usually ladder my entries with 4-10 positions. Still working on it.
Reminder : A drawdown >25% brings a risk of ruin between 0.5 to 1%. My 10 years experience in risk/reward management 2 cents. This one percent HAPPENS. A human common bias is considering small percentage as irrelevant. They are very relevant, get other this bias.
In my opinion :
<1% risk per trade is MANDATORY if your capital is consequently above your cash flow.
1-3% if you cash flow afford you to rebuild your capital quickly.
>3% if you are masochist.
7 : Mental check-up
Am i calm? Do i want to trade this setup logically or am i pushed by Greed or desire of Revenge? What are my recent results? Am i emotionally involved? What are my recent results?
Winning Tilt : Care of Overtrading, loose Stop losses, passing by mandatory partial profit.
Losing Tilt : Care of Stops too tight, freezing and undertrading.
8 : Accept uncertainty and pending loss.
A drawdown is normal even to very successful traders, for exemple with 50% success rate, you are gonna frequently have a 16 consecutive losing streak. Why this trade would be exceptionnal? Don't take this trade if you are not ready to lose 16 times your stop without blinking, without complaining. If you find yourself doing that, then it's a sign you are too exposed. you DON'T HAVE to risk 1% per trade, especially if you haven't proved you are a winning trader with a long history of profitable trades. Accept this trade is almost irrelevant and part a of a bigger picture. A lifetime of profitable trades that are going to increase your capital. No more no less.
9 Backtest before exposing yourself.
Is this trade part of my bigger plan? Am i in my confort zone? Am i factually profitable with that sort of trades? If yes, Green Light.
If no, don't panic, this work is not worthless. It is very valuable to open ourselves at other technical analysis, other instruments. But no so recommended to burn some bills on it. Time to Paper test this setup, or trade it on a demo account. Make stats on it, is it better than your actual strategy? Yes, you just made yourself richer? No?Smarter then..
Note
10 : Setup Alerts on Key Levels and manage the Trade. Do it also on your paper trading, or demo account. If you find a strategy more profitable than your actual strategy, your capital is gonna be thankful forever.
Good luck and Happy trading to everyone.
Jonas.
Note
Don't mind the 1: in french,Traduction is : 1 : Draw Key Levels and Trend.
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