An Optimal Trading Guide to Action trades
There are only a few decisions you need to make as a trader.
When you actually need to press buttons to action trades.
To enter, to adjust and to exit.
It’s crucial for you to know when is the right time to do so.
You need to consider certain factors and criteria to enhance the chance of profitability.
And at the same time to mitigate risks.
So here are four optimal actions you’ll need to take.
When the Trading Signals Line Up – ACTION!
This one is a given.
When your trading system, strategy and signal all align.
This refers to the convergence of multiple indicators or technical analysis tools, such as breakout patterns, Smart Money Concepts, moving averages, trend lines, or oscillators.
When these signals confirm each other, it presents a higher probability trade setup.
You need to wait for the confirmation though and the go ahead.
This way, you’ll gain the competitive edge for when to enter and to avoid premature trades.
Adjust the Stop Loss or Take Profit Levels – ACTION!
During a trade, it is essential to monitor the market closely and be ready to adjust the stop loss or take profit levels (according to your strategy).
This should NOT be guess work. This should be calculated on probabilities and in a way that you can optimise the strategy in a mechanical fashion.
The stop loss is a predetermined level that limits the potential loss on a trade.
While the take profit is a predefined level at which a trader intends to exit the trade with a profit.
As the market evolves, price action and new information may necessitate revising these levels to protect profits or minimize losses. Which we often do as traders to increase the win rate and lock in potential and minimal profits.
Traders should remain flexible and make timely adjustments to ensure their trade is aligned with the prevailing market conditions.
When the Time Stop Loss Hits – ACTION!
In certain trading scenarios, there may be a need to exit a trade before it becomes a long-term investment.
This is particularly relevant in markets where overnight positions incur daily interest charges, such as in some derivative or forex markets.
Traders must set a predetermined time stop loss i.e. 7 weeks holding a trade.
You don’t want to incur too many interest charges.
You don’t want to MARRY a trade.
You don’t want to have capital tied up in stock during nonperforming trades.
This is an opportunity cost where you can choose better trades to line up.
If this time stop loss is reached, it is prudent to exit the trade (no matter what time of day it is), even if it is still within the specified stop loss or take profit levels.
Either you’ll take a less than desired profit or less than expected loss.
By adhering to the time stop loss, traders can avoid accumulating excessive interest charges and maintain your trading strategy’s integrity.
When a Freak Anomaly Spooks the Market, like a Black Swan – ACTION!
In rare instances, unforeseen events or anomalies, often referred to as Black Swan events, can greatly disrupt financial markets.
These events are characterized by their unpredictability and magnitude, causing extreme market volatility. Normally when a market or index moves 10 times the standard deviation of it’s normal move.
When such anomalies occur, it is crucial to act swiftly and exit the trade.
Trying to ride out these events can lead to substantial losses.
By recognizing the abnormality and promptly exiting the trade, traders protect their capital and avoid unnecessary risks associated with highly volatile market conditions.
A few but powerful times you need to take action to lock in, protect, manage, bank and call it quits.
Master this and you’ll make better and well-timed decisions and adapt your positions to changing market conditions.
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