Many traders lack discipline due to poor risk
reward ratios. This makes trading more
challenging as they then increase the need to
win more trades. I always recommend a
minimum 2:1 as this means even if you are
right only 50% of the time you will still be
ahead. This should not be so rigid that if you
feel the market will not quite get your price
you hold out as then the trade will lead to a
loss. It’s okay to accept less on some trades as
when you have a strong feeling it is possible
to aim for higher profits. I always aim to
maximise my profit in every trade and create
zones rather than a single price. I will identify
the price I expect the market to be rejected at
and place a series of orders in front of that
price. My stop loss will be either based on the
average price or individual stop orders against
each entry price with the loss very similar in
value regardless. When the market is moving
in my direction, I begin to exit the position a
little at a time to gain a good average, just in
case the market reverses. Zones again offer
flexibility!
Another issue is traders do not understand
the product they are trading. They are
unaware of the fundamentals that impact the
product which impacts their potential to
profit from trades or cut losing ones early
when fundamentals change. Correlations
between various products or asset classes can
also be very useful for this. If a trader is
trading a contract such as the S+P its useful to
know the companies that impact the index
the most. I always suggest learning the top 10
companies or make a list of the top 10%.
Imagine holding a long position and positive
news breaks regarding one of those
companies. It provides you the insight to add
to your long position or remove your sell order
as there is probably a lot lore profit to be
taken from that trade! Alternatively, if the
news was a negative it would give you the
opportunity to exit your position early or even
revers it!
Many traders lack discipline due to poor risk
reward ratios. This makes trading more
challenging as they then increase the need to
win more trades. I always recommend a
minimum 2:1 as this means even if you are
right only 50% of the time you will still be
ahead. This should not be so rigid that if you
feel the market will not quite get your price
you hold out as then the trade will lead to a
loss. It’s okay to accept less on some trades as
when you have a strong feeling it is possible
to aim for higher profits. I always aim to
maximise my profit in every trade and create
zones rather than a single price. I will identify
the price I expect the market to be rejected at
and place a series of orders in front of that
price. My stop loss will be either based on the
average price or individual stop orders against
each entry price with the loss very similar in
value regardless. When the market is moving
in my direction, I begin to exit the position a
little at a time to gain a good average, just in
case the market reverses. Zones again offer
flexibility!