In our last email we showed you how to pick your trade’s price point entry with laser precision.
Now that you know how to consistently and accurately select the exact price point for your trade’s entry, you will want to learn how to hedge your bet after entry to ensure the highest percentage of winners.
As we discussed in our previous installment, you do not want to chase the market. By using a resting stop limit order one tick beyond the high or low of your setup bar (for a buy or a sell) you are taking a strategic approach that requires the market to prove itself by trading through your limit-based order. This eliminates slippage and allows you to take a more relaxed approach to trading.
What do you do after you are in the trade? As mentioned in the previous installment, you should park your stop loss order one tick away from the other end of the setup bar you used for entering your trade. This is called a Logical Stop and was explained in the last installment.
Ideally, you want to take advantage of whatever automation your trading platform allows. In today’s high volatility markets, you will often not be able to place or cancel orders fast enough to keep up with a typical trade. That is why you need to automate each step after trade entry.
Depending on which exit strategy you had chosen before entry (exit strategies were covered in a previous installment), you will want to have a fixed price target that is tied to your stop loss order in what is called an OCO or bracket order.
This bracket order should be automatically placed by your software, if your platform permits, to prevent expensive accidents from occurring if you forgot to straight cancel either your target or your stop loss order if one of them is hit.
Taking this a step further, you can hedge your bet by moving your stop loss order to breakeven (entry price) +1 tick of profit. The TradeSafe System has a built-in algorithm that automatically triggers a cancel-and-replace order for your stop loss. You will want to experiment with how much open profit your trade has generated before it hits your target, so that your stop loss order can be moved to breakeven +1 tick of profit.
This automated move of your stop loss order to breakeven +1 tick of profit locks in winners that could have turned into losers. If your trade doesn’t reach the target, and instead scratches, you will still technically have a winner that will at least pay for your commission as well as still have some money left over to add to your trading account as profits.
The combination of having small, variable size stop loss orders (Logical Stops based on the range of the setup bar) with an automated trigger algorithm that guarantees a winner by moving your stop to breakeven +1 tick of profit ensures that you have a very high percentage of winning trades with very small initial risk.
Stay tuned for next week’s installment to learn more about how to achieve the lowest possible risk for your trades.
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