I been trading before the invention of the home PC. Back testing was a long tedious process, even as simple as a moving average was tough, let alone charting by hand 30-40 markets. I learned price action whether I wanted to or not, first on daily bars. then with PC for day trading. Methods have changed to becoming more difficult as time has passed. but not more profitable for many. Everyone wants to start with the most difficult way to trade first, day trading instead of long term trading whether commodities or stocks. The most money to be had is long term trading and the least "per trade" is day trading. Seldom does anyone count in commissions, but THIS expense in day trading is one of the biggest percentages of ones' losses whether in a winning or losing trade. But, those who are starting and full of dreams, don't want to hear this, they prefer the "action", thinking that more trades the better, buy as the market moving higher, sell as the market is going down, the "feel good" trades.
So whether I am doing monthly, weekly, daily long term trading or trading five minute bars on ES, my methods of entry are pretty much the same. The only difference is in ES my stay is one point 80% of my contracts. Long term reward to risk is seldom less than four to one, with commissions being less than 0.005%, in day trading however, reward to risk for me factors out 1.1 to 1.375 and commissions are 15.4%.
1) Here is the most important area, do simulated trading for 2 months, and if you can't be profitable four out of five days for each week, don't start trading. Don't be one of the many horror stories that you lost $80,000 in two years and you need to get it back, cause it is not going to happen. You are going to have to get it back from others who are too eager to start losing.
2) Setting a good stop, that is accomplished by back testing your winning trades, go back 1000 plus trades and finding out the optimum amount of risk needed, how much did the trade go against me before being profitable trade.
3) Set target by back testing 1000 plus trades, how far did majority of them go before backing off.
4) Every trade has 50/50 chance of being winner, it is only after 1000 trades whether one feels this changes. I am amazed at how many new traders come into this game and take it so litely that they can compete against the most experienced, read a book, do very little back testing, open an account and trade. Money must come cheap for many who entry. Or the dreams of being accomplished will be easy, lying on the beach by 11:00am.
5) I do not trade in direction of current trend, I have discipline of excellent entries counter to trend. I need the market to expand too much in one direction.
6) There are no simple rules for trading, this is a tough business and it is a business, you lose your money, you are out of business, THAT is plain and simple. Once you learn how to trade, you look back and think "why could I not figure this out my first year"?
Too many have dreams of grandeur.
My way of trading is by no means the only way to success and applaud all who have worked hard and continue to strive to become better at our craft.
Handle
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)
