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 Traders will forever debate the merits of mechanical
trading vs. discretionary trading. One is a strategy which employs
an entry and exit strategy, based on a quantitative analysis, while
a discretionary strategy is essentially the opinion of the trader
in question.
One of the keys to successful trading is to be
emotionally detached from the markets you are trading. How can you
do this?
There are two components, which are crucial in this matter. One
is preparation, another is risk management. By being prepared you
will find that you can trade with confidence and feel comfortable
with your position in the market.
In the following example, I would like to share with you some
thoughts during a recent trade on the Dow Jones. By being prepared
in advance for a possible Low Risk setup and simply applying
patience and discipline, the market provided a trade on the short
side with a favourable outcome.
Look at the following chart (US SP 500):
Charts courtesy of E-signal
Using the strategies taught at our workshops and at
http://www.tradertom.com/, the US
SP 500 reached a pre-determined resistance level of 1527. This was
an area where I was prepared to look for a short trade only if the
market presented an opportunity.
Once the market had indicated that it would change direction, my
first concern was to determine the risk on this trade and a
potential exit target. This is something that you should always ask
yourself before taking a trade and not during the trade.
The initial target for the exit was 1294, which meant that once
the trade started to work out according to my plan, I had an area
to focus on for my exit strategy.
The result for this trade was a profit of 233 US SP 500 points.
At £20 a point, this would have resulted in a profit of £4660 tax
free. The risk was 10 points or £200.
When you are trading longer time frames, it is useful to be
patient and let the market work for you. As long as you have
defined the potential risk on your capital and are comfortable with
the figure then as a trader you must simply act upon your trading
plan.
Professional traders focus on risk not on predicting market
moves. Have a good trading plan and a sound trading system
with effective money management.
By preparing yourself in advance, when a low risk opportunity
presents itself you can look to take advantage of the situation
with confidence. Remember you must at all times remain objective.
The market will do what it wants to do not what you want it to do.
If you can accept this fact then it puts you one step closer to
trading successfully. If you need some help implementing this
strategy, then come to one of our workshops, meet fellow traders,
and learn from our traders here at Finspreads.
Happy trading,
Tom Hougaard
Please remember spread betting is leveraged and can result in
losses quickly exceeding an initial outlay. It’s not suitable for
everyone and you should make sure you fully understand the risks
involved. If you have any doubt, please seek independent
advice.
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