Hello everyone! In this post we will present and explain our trading system.
Our trading system condensates everything we have learned from hard work, study and even harder lessons received in these years of trading. It is constantly evolving and updating, we are always ready to question some aspects of our system and research tools and strategies that can improve it.
We will distinguish and explain three different aspects of which the system is composed: Analysis, Execution and Research.
Analysis
The analytical part concerns all the tools and the strategies that we use to formulate an hypothesis on the direction of the market, and consequently develop a trading strategy.
A trading strategy is composed by:
-an Invalidation Level: a price level that, if crossed, proves our hypothesis wrong. This is the limit level at which stop losses can be set.
-a set of Entry Points/Levels: composed by price levels of chart points that according to our analysis can trigger the move that we are hypothesizing.
-a set of Target Points/Levels: composed by price levels of chart points where the move that we are hypothesizing can end.
Once a trading strategy is determined, it will be implemented in the executive part.
But on what is our analysis based?
Elliott Wave Theory, Pattern Trading and Sentiment Analysis.
We believe that the chart encodes all the information available. News and events are priced in the market instantaneously. The fundamentals are revealed simultaneously with the price action.
Any news or fundamental consideration is just one piece of the puzzle. Price is the synthesis of the result.
Price moves because of mass psychological dynamics inducing people to buy and sell. These dynamics are observable in the sentiment and in the fundamentals, and manifest themselves in chart patterns. The composition of chart patterns forms Elliott Waves structures.
We don't use this approach as a mix of independent tools, but in a holistic and comprehensive approach. We analyze the wave structure of the market starting from higher timeframes, assessing probabilities of different scenarios by analyzing chart patterns and using different tools related to the sentiment, such as Smart Money Indicator, Volume Profiles, Order Blocks, etc. We use the same approach in smaller timeframes to set the trading strategy (Entries, Targets and Invalidation Level).
Execution
The executive part of our trading system involves risk management, placing orders in the market, and managing active trades.
Once we have developed a trading strategy, we have a set of entries, a set of targets and an invalidation level. We have to use them to define a Trading Plan.
Here is the first rule of risk management: we can not lose more than 1.5% of the trading capital for each trading plan.
You don't have to depend on one trade. One trade should not be decisive. Trading must not be funny. This is the only way to decrease your biases and your emotional involvement.
So in a Trading Plan we decide how many trades to open, how much risk to allocate on each trade (NOT MORE THAN 1.5% TOTAL), at what price execute the trade, and where to set stop losses.
No stop loss can be set above the invalidation level. If prices reaches the invalidation level we are OUT. No matter if prices then follows the hypothesized direction, market will always provide other opportunities.
We also plan where to take profits at the pre-determined Target Levels.
Research
The research part of our system is our constantly updating and challenging our knowledge studying new tools, approaches, strategies. Knowledge is dynamic and always updating. You never stop learning.
We will post all our analysis and trades. Stay tuned and happy trading! :)
Our trading system condensates everything we have learned from hard work, study and even harder lessons received in these years of trading. It is constantly evolving and updating, we are always ready to question some aspects of our system and research tools and strategies that can improve it.
We will distinguish and explain three different aspects of which the system is composed: Analysis, Execution and Research.
Analysis
The analytical part concerns all the tools and the strategies that we use to formulate an hypothesis on the direction of the market, and consequently develop a trading strategy.
A trading strategy is composed by:
-an Invalidation Level: a price level that, if crossed, proves our hypothesis wrong. This is the limit level at which stop losses can be set.
-a set of Entry Points/Levels: composed by price levels of chart points that according to our analysis can trigger the move that we are hypothesizing.
-a set of Target Points/Levels: composed by price levels of chart points where the move that we are hypothesizing can end.
Once a trading strategy is determined, it will be implemented in the executive part.
But on what is our analysis based?
Elliott Wave Theory, Pattern Trading and Sentiment Analysis.
We believe that the chart encodes all the information available. News and events are priced in the market instantaneously. The fundamentals are revealed simultaneously with the price action.
Any news or fundamental consideration is just one piece of the puzzle. Price is the synthesis of the result.
Price moves because of mass psychological dynamics inducing people to buy and sell. These dynamics are observable in the sentiment and in the fundamentals, and manifest themselves in chart patterns. The composition of chart patterns forms Elliott Waves structures.
We don't use this approach as a mix of independent tools, but in a holistic and comprehensive approach. We analyze the wave structure of the market starting from higher timeframes, assessing probabilities of different scenarios by analyzing chart patterns and using different tools related to the sentiment, such as Smart Money Indicator, Volume Profiles, Order Blocks, etc. We use the same approach in smaller timeframes to set the trading strategy (Entries, Targets and Invalidation Level).
Execution
The executive part of our trading system involves risk management, placing orders in the market, and managing active trades.
Once we have developed a trading strategy, we have a set of entries, a set of targets and an invalidation level. We have to use them to define a Trading Plan.
Here is the first rule of risk management: we can not lose more than 1.5% of the trading capital for each trading plan.
You don't have to depend on one trade. One trade should not be decisive. Trading must not be funny. This is the only way to decrease your biases and your emotional involvement.
So in a Trading Plan we decide how many trades to open, how much risk to allocate on each trade (NOT MORE THAN 1.5% TOTAL), at what price execute the trade, and where to set stop losses.
No stop loss can be set above the invalidation level. If prices reaches the invalidation level we are OUT. No matter if prices then follows the hypothesized direction, market will always provide other opportunities.
We also plan where to take profits at the pre-determined Target Levels.
Research
The research part of our system is our constantly updating and challenging our knowledge studying new tools, approaches, strategies. Knowledge is dynamic and always updating. You never stop learning.
We will post all our analysis and trades. Stay tuned and happy trading! :)
