Quote from DrEvil:
I feel that successful trading is achieved when the following 4 steps are followed on each trade:
1) Trade in direction of broader market (.i.e the direction of the higher timeframes)
2) Set a good stop (i.e if going long, the stop should be below support, if going short the stop should be above resistance.
3) Set target at next major support (if short) and next major resistance (if long).
4) Enter only at low risk. That means enter if and only if you can get in at a price that is relatively close our stop when compared to your target (i.e. risk/reward should be better than 1:1)
In conclusion, I feel that if a trader follows these steps in the order above they won't go far wrong and have a good chance of achieving net profitability.
That's how I used to think, but my views have changed over the years. I'd suggest the following refinements:
1) Generally trade in the direction of the major trend. However, be aware that as a move gets to extremes, the fade trade starts to become a superior odds play. Recognising and then timing such reversals is an art form that requires considerable experience and balls.
2) Set a good stop, but recognise that many trading opportunities are exploiting a kind of subtle market drift, where there is no clear buy point or clear place to set a stop, and pretty much any close stop is likely to get taken out by noise. Often you just have to get in, and rely on a combination of mostly being right, along with conservative position-sizing, for your risk control (Buffett-style trading/investing, basically - be right more than wrong, and don't get faked out by noise). A perfect example is crude oil - there is no stop that would have kept you in from $25 all the way to $125. When the market fell from $77 to $50 in 2006/07, anyone using a stop would have been squeezed out. There were only two ways to stay on for the ride - either accept that you can't quintuple your capital without accepting 30-40% corrections, and therefore just buy & hold; or have amazing timing skills, and get in and out at the right time. Almost no one can do the latter, so the best plan for most traders is do the former, and accept that you can't score outsize returns without taking reasonable risks. A 400% return in 5-6 years, with only a 35-40% drawdown, is still a reward:risk ratio of 10:1, after all.
3) Set a target when the market is within a range. But when the market is making new 52-week highs or lows, and there is no clear support/resistance ahead, then do not set a target - just let the trade run as far as you can.
4) Entry at low risk is only useful for a very short period, because as soon as the market has moved a bit in your favour, the risk point (below support) is now further away, and the target (below resistance) is nearer, so your win/loss ratio goes down pretty much right away. For example, if you bought at 1260 in the S&P in March, you had about 20 points risk maybe. But once the S&P hit 1330, you now had 90 points risk, and only 60-90 points upside. Yet staying long was still the right thing to do. CONCLUSION: risk is unavoidable in the markets. You can't make good profits unless you are prepared to give back some of your gains. Just identify when the market is set up in your favour, place your position, then stay in until the market stops acting in your favour. At S&P 1375 recently, despite resistance being 25 points away, and support 125 points away, staying long was still the correct thing to do. Why? Because the market was acting bullish, NOT because you had a "low-risk" entry point with big upside.
I would add the following:
5) When a market has made a substantial move over a long period of time, and then the move goes parabolic and experiences a buying frenzy along with sentiment excess (or a selling panic, for down trends), then no matter how bullish you are long-term, a short or medium-term top is near. Start booking profits, scale out of your positions into the ramp up, and buy puts (or calls for down moves) to hedge your core long-term investment positions.
6) The best trades are those where the price action is moving contrary to sentiment. For example, a grinding bull market where everyone keeps thinking the price is too high and must correct (oil recently has been a *great* example of that). Or when everyone panics, yet the price rebounds hard and keeps going. Therefore try to look for price action/sentiment divergences.
or shades 
smily