Every trader is looking for consistency in results. That also means consistency in approach. There must be a clear trading plan where trades are planned in advance. A clear trading plan is essential to trading. We are not providing you with the rules, because every trader has a different psychology and risk appetite. We can just give you a few examples of what kind of rules should be followed. The actual rules you frame are up to you.
All rules that you decide on must be written down and followed.
Stop Loss – The first thing to plan is where the trade has failed (and not how much money you will make). This “failure point” becomes your stop loss. The stop loss can be a hard stop or a soft stop.
a) A hard stop is where once an exact price hits, the trade is immediately closed – no second guessing, no hoping it will move in your direction, no hail mary. This is usually used with short sell futures trades.
b) A soft stop is where once price hits, the trade can be kept open for a while longer with a pattern expectation that it will reverse to near or at the point of entry, at which time the trade can be closed at or near break even.
Trading Method : It may be Elliott Wave or a combination of methods – moving averages, hurst cycles, macd divergence or anything else. As long as the method is followed consistently.
a) For new traders, keep it simple. Make rules for yourself. For example, “i will only enter a trade on a correction after there is a 5 wave move up or down. I will not take other trades” or “i will only enter a trade if the correction has retraced at least 61% of the preceding 5 wave move. I will not take a trade, however attractive if the correction has retraced only 38-50%”.
b) Reward to Risk Ratio : Decide a rule for yourself for a minimum reward to risk ratio like 2 : 1. For example if you are risking 30 points on a trade, the reward should be at least 60 points. If a trade then offers a 1 : 1 ratio or a 1.5 : 1 ratio, you will not take it.
c) Decide in advance at what level should the stop loss be moved to break – even.
d) If you have a series of consecutive winning or losing trades, you will not trade any more for a certain period of time. This also helps clear the mind.
Take Profit : This is the last part of the trade. Where to take profits. For inexperienced traders, we suggest closing 1/3 of the position at about a 3rd of the way to the target. This locks in some profits and creates confidence. The second 1/3 can be taken at or near the target. The last 1/3 consider letting it run for more time as long as stop is then moved at least to break even or a reversal pattern emerges.
These are just example. You decide your own rules. Whatever rules you decide should be written down and followed rigorously.
The psychology of a trader is as important as the methodology used. Both methodology and psychology can be learned. Consistency is vital for your performance. A clear and positive mindset goes a long way towards this goal.
We wish you all the best.