Let me speak or write today about certain perception that retail traders may have when they start their trading journey,
Entries are seen as the most important aspect about trading. Is has been nevertheless proven that liquidations are vastly more important then entries.
You may try it out for yourself, you can enter the market randomly and then manage your positions. After that you manage your positions with proper risk management to avoid any excess loss. If you let your winners run then in the long term you might be surprised with the positive results.
An entry is therefore part of your trading but in the long run it is the exit point of your trade that defines your success as a trader. As an example we may have a winner that makes up for 10 or more losses.
When newbies are asked about trading they think that indicators, then entries, then trade management, the stop loss and that then finally the exit is more important.
Professional traders concentrate on continuous learning, trade management, risk management, exits, stop loss and finally entries.
The goal for the smart trader should be consistency.
This may mean different things to the individual trader with his personal trading style. This is where the law of large numbers comes in as explained in a previous post.
Risk no more the 2 % in any sinngle trade. Here I would say that it depends on your time frame. For shorter periods you may have a tighter stop loss and risk the 2% or even more. For higher time frames you should risk less to avoid a high draw down of your account. But if you did your homework and you have a system that has a winning % of 80% with a 1 to 1 risk reward then you may of course already risk more because you control your system and you are aware of its positive expectancy.
It can be said that the less you risk per trade the less probably it is to have a strong drawdown. This could be seen as your risk of ruin. It is therefore important for you to try different styles of trading to know which system adapts the best to your personality so that you may draw conclusions about what kind of trader you are, which system suits you most and with what kind of risk management suits you the best.
The aspect of trading is risky. There is no such thing in life as no risk. If the proper precautions are taken then you have the power to control your risk. It is your job to find your edge and play it out for the long run to put the odds in your favour. Remember the casino is not worried about individual losses in the long run it makes money because it has the odds in his favour.
The bigger the leverage the bigger the profits. At the beginning I would not recommend to use leverage or a lot of leverage. If used in excess you may lose your trading account and even more.
It can work for you but also against you. Margin calls should be avoided at all time and why not trade small positions until the results come in and the gradually increasing the size of ones trade using compounding in the long run.
Success will come if the trader finds his place in the market.
Risk to reward ratio means that you should take your chance of loosing % into account. ( pips you stand to loose*chance of losing).
Once you know your probability of winning then you may estimate your risk to reward to insert the proper position size.
Trading with confluence: Here I would be careful. Imagine you use 10 instruments below your charts that all tell you the same thing about price. Are you better off then a trader that only uses 2 instruments. And if you use many instruments will you not have analysis paralisys. Will you not be late on most of your entries. Or what if you are positive with your 10 instruments but you only receive a signal every few days. What if you compete against someone with less factors of confluence but who has a few entry signals every day.
Trading is easy money. This is what attracts most people into trading. All become millionairs. There are nevertheless hedgefunds that only make 20% a year. So why does your broker advertise that you make 100% a month.
The best way to go about it is to make consitently 2% a month and to have every time more money under management. Investors normally try to avoid any unecessary risk and look for consitent returns at certain time intervals.
You need to know every time where price is going. Well a casino does not know if it wins the next hand or not but it does know that it will make money in the long run. You my friend need to let your winners run and try to find trending markets. Once this is found then you add to your positions and gradually protect your risk trailing your stop loss.
Stop hunting, brokers want you to succeed in the long run so that they earn your commissions. Therefore your stop needs to be placed where the smart money puts it. If you play the same game with the same understanding then most likely your stops will not be hit unless your trade idea is wrong.
Lots of information for you to think about but I hope and this is my purpose for you to be aware of this information and to use this to your advantage.
I wish you like always the BEST OF PIPS