Hi Traders. Today, I would like to discuss about a topic that's quite commonly neglected by beginner traders "Thought Process". Do get me right, no one can guarantee 100% accuracy in every position, but having a proper thought process almost always guarantee a better long-term performance, especially getting you mentally prepared in advance. To better demonstrate the topic, I've given an example above, something worth considering. These are several questions I ask myself before I even think about getting into a position.
1. Who's in control? - Charts only move up and down. Before you even dig into deeper analysis, first ask yourself who's territory are you currently looking at? Buyers or sellers? This is why multiple timeframe analysis is so important that gives you a better clarity of the current market condition. If the first thing do when you wake up is pulling up the 5m chart and begin trading, believe or not, there will be plenty of time where you get caught on the wrong side.
2. Market condition - Strong trend, weak trend, channel, or range bound? By identifying the market condition it avoids you from over trading and putting on unnecessary risk. Eg. If your strategies are mostly momentum ignition type, range bound condition wouldn't give you the ideal risk-to-reward, switch off the charts and come back later.
3. Area of value - It's never easy to catch the top & bottom, but you could always Identify zones where you'd like to make a deal and better time your entry. Eg. During a trending environment, If the market respects the 50ema very well, then use it as a filter every time price pullback towards it, adding up other confluences such as trendline, candlestick pattern and static support & resistance zone to provide additional reasons for you to pull the trigger with confidence. There are many other great momentum & volume indicators available on TradingView (Eg. Bollinger Band, VWAP, RSI, Stochastic, etc.).
--> Utilizing the above chart as an example, what should you do during a consolidation (exhaustion) phase after an impulsive move? Believe or not, majority of beginner traders would begin selling immediately when they notice the pullback due to the sense of urgency to take action, but if you take step back and re-evaluate it, placing a buy order in this scenario makes more sense isn't it? Unless you have specific mean reversion strategies that are back-tested, avoid going against the trend without at least 3-4 confluences. Simply buy at the support with a sensible stop below it, you now have an additional force supporting your thesis because the market is telling you that buyers are still interested and agree to hold the price above that level.
4. Stop loss & target - Always ensure you have a SL & target in your mind before you even place an order. One common trait about new traders is that they always try to maximize their position size by tightening their stops (greediness) OR having their target too far, do not try to enforce your will into the market, let the market does whatever it wants and respect it. SL is nothing but a trigger that invalidates your initial thesis, stop treating it otherwise, and always place it reasonably.
5. Trade management - Have you ever cut off an amazing position due to fear & overthinking, only to realize it eventually goes into your intended direction? This is why an exit plan is crucial, list down a set of rules and illustrate various scenarios. Agree with certain rules beforehand that you will cut off the position without hesitation, it helps you in better managing your emotion by being more systematic.
"The outcome of a trade cannot be controlled, but the mind can be organized to control its performance" - Rande Howell.
Trade safe.
Do follow my profile for daily fx forecast & educational content.
1. Who's in control? - Charts only move up and down. Before you even dig into deeper analysis, first ask yourself who's territory are you currently looking at? Buyers or sellers? This is why multiple timeframe analysis is so important that gives you a better clarity of the current market condition. If the first thing do when you wake up is pulling up the 5m chart and begin trading, believe or not, there will be plenty of time where you get caught on the wrong side.
2. Market condition - Strong trend, weak trend, channel, or range bound? By identifying the market condition it avoids you from over trading and putting on unnecessary risk. Eg. If your strategies are mostly momentum ignition type, range bound condition wouldn't give you the ideal risk-to-reward, switch off the charts and come back later.
3. Area of value - It's never easy to catch the top & bottom, but you could always Identify zones where you'd like to make a deal and better time your entry. Eg. During a trending environment, If the market respects the 50ema very well, then use it as a filter every time price pullback towards it, adding up other confluences such as trendline, candlestick pattern and static support & resistance zone to provide additional reasons for you to pull the trigger with confidence. There are many other great momentum & volume indicators available on TradingView (Eg. Bollinger Band, VWAP, RSI, Stochastic, etc.).
--> Utilizing the above chart as an example, what should you do during a consolidation (exhaustion) phase after an impulsive move? Believe or not, majority of beginner traders would begin selling immediately when they notice the pullback due to the sense of urgency to take action, but if you take step back and re-evaluate it, placing a buy order in this scenario makes more sense isn't it? Unless you have specific mean reversion strategies that are back-tested, avoid going against the trend without at least 3-4 confluences. Simply buy at the support with a sensible stop below it, you now have an additional force supporting your thesis because the market is telling you that buyers are still interested and agree to hold the price above that level.
4. Stop loss & target - Always ensure you have a SL & target in your mind before you even place an order. One common trait about new traders is that they always try to maximize their position size by tightening their stops (greediness) OR having their target too far, do not try to enforce your will into the market, let the market does whatever it wants and respect it. SL is nothing but a trigger that invalidates your initial thesis, stop treating it otherwise, and always place it reasonably.
5. Trade management - Have you ever cut off an amazing position due to fear & overthinking, only to realize it eventually goes into your intended direction? This is why an exit plan is crucial, list down a set of rules and illustrate various scenarios. Agree with certain rules beforehand that you will cut off the position without hesitation, it helps you in better managing your emotion by being more systematic.
"The outcome of a trade cannot be controlled, but the mind can be organized to control its performance" - Rande Howell.
Trade safe.
Do follow my profile for daily fx forecast & educational content.