A Traders Motto; React to Confirmation

Here at Trade With Precision (TWP) we teach a small range of trading strategies that, if applied correctly and over a large enough sample set of trades, will stack the probability of success on the trader’s side. These simple strategies are always in the direction of the overall market trend and have a “check list” of essential criteria to be met before placing an order in the market.  We call this ‘technical trading’ and it brings order and consistency to an otherwise random and chaotic market. 

The trading strategies all have a ‘trigger point’ at which time the trade is technically triggered, we call this the entry.  At the point of entry we also have a predetermined exit, whether that be on target or stop i.e. a winner (or loser), so we know in advance what our exit is and can therefore determine our profit (or loss), our position size and most importantly our risk on any one trade.

However, there is another factor that gets in the way of this and it is our own mindset!  The human element: our biases and thoughts.  It is this area of overcoming our own frailties that becomes the focus of attention once we get into live trading on the open markets and, without a constant vigilance to sticking to the rules of the strategies, we can start to develop bad habits.  Bad habits can become ingrained, difficult to eradicate and are certainly unprofitable.

One such bad habit is becoming impatient to see the trade develop fully to the point where all the essential criteria is met and the trigger candle is completed.  Amateurs have a tendency to get into the trade ahead of time, they sense an urgency that the trade might get away on them or feel that there is not enough time to complete the order docket and get into the trade at market.

The consequence of this is very often the trade will come close to triggering, but may well reverse and head off in the opposite direction.  This leaves our hapless trader already in the trade with the price action going against them.  If only they had waited until the trade fully developed, then placed the order. When the trade does not trigger and goes in the opposite direction we call this an invalidation of the trade.  If we had placed an order in the market, it would not have been triggered and we simply then remove the order.  We thereby avoid a losing trade and simply wait for the next trading opportunity to come along.

In the example below we have a complying trade setup to the short side with the entry, stop and target already determined ahead of the trade being triggered. Note that the price action is near to the entry level but has not yet touched it. If, and only if, that price level is achieved will the trade be triggered. In the subsequent move the trade was triggered, stop was never threatened and a winning trade was achieved.

Professional traders have a motto that says: “My skill is to wait for confirmation, I do not forecast a move”.

Here at TWP we teach sound trading principles based on many years of professional trading. If you would like to learn how we trade the markets then join us in this week's live webinars below.

Regards,
The TWP Team