In our last email we introduced you to the concept of avoiding a one-size-fits-all approach to trading. Simply put, every market has a unique personality.
How do we discover each market’s personality and turn that knowledge into consistently profitable trading? Keep reading and you will find out exactly how to tune your charts so that they make the most of each trade.
In last week’s email we introduced you to the concept of trading with multiple charts to give you a zoom lens effect so that you can determine whether there is a Trend that is worth trading. As an example, we used the US indexes and showed you a formula you can use for other types of markets.
You ended up with three chart settings that corresponded to the equivalent of a wide-angle view of the intraday market, the dominant cycle or normal view of the market, and the final close-up low risk, surgical entry setting.
Assuming that you have a reliable Trend indicator on your charts, you need to take it a step further and determine just how strong that Trend really is. By knowing how strong the Trend is you will be able to anticipate the potential follow through of any trade that you get.
In the TradeSafe Mechanical Trading System we use a rhyming mnemonic to help traders remember the various options they have for managing and exiting a trade.
It goes like this: “The one and the three need to agree, best is if all three agree.” This means that the low-risk surgical entry chart (one minute) must be trending in the same direction as the next higher setting chart (three-minute) at the very minimum.
If only the one-minute and three-minute charts are trending together, up or down, then you have the potential for at least minimal follow through. The best exit strategy for a weak trend combination such as this would be a simple scalp, where you are only going for a few ticks.
If all three charts agree (1, 3, 9) then you have the potential for much more follow through. Why waste a trade on a simple scalp? You would be leaving money on the table. The optimal exit strategy to exploit this potential follow through would be to scale out of half of your position at an easy to reach target (thus paying for your trade) and then to trail a profit stop for as long as the price move continues.
It is up to you to determine how you want to trail your profit stop and where to exit the second half of your position. In the TradeSafe Mechanical Trading System all guesswork is eliminated because the entire exit process is fully automated.
Since you also have the option of entering trades on tick-based charts instead of on a one-minute chart (to offer additional entry opportunities at lower risk levels) you need to remember that you cannot enter on a tick-based chart unless the one-minute and three-minute charts are trending in the same direction.
This approach allows you to custom tailor your trade management and exit strategies based on what the market is capable of giving you. Avoid a one-size-fits-all approach!
To learn more about TradeSafe, please click HERE.
To watch a Replay of a recent online workshop about the TradeSafe Mechanical System, please click HERE.
Stay tuned for next week’s installment to learn more about how to best enter trades in a trend.