Thread by @SKTrading6

It's the weekend!

Grab a cup of coffee, in this thread 🧵I will explain basic concepts of trading

1⃣Trading Plan
2⃣Trade Setup
3⃣Trading Strategies
4⃣Trade Trigger
5⃣ Stop Loss
6⃣ Price Target
7⃣ Reward-to-Risk

Let's dive right in.

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1⃣Trading Plan must include

➡️Timeframe - Minutes to years
➡️Markets - Equity/Currency/Futures/Options
➡️Risk Management - Capital Risk per trade
➡️Conditions - Ranging/Trending
➡️Entries - Pullback/Breakout/Crossover
➡️Exits - Stop Loss /Initial Target & Trailing SL

2⃣Trade Setup is based on Trading Plan. It is the reason for your trade.

For example: If you are expecting a breakout in a stock. that is the reason for your trade.

If your reason for trading isn't present, don't trade.

3⃣ Choose your Trading Strategies

For example:
▶️Momentum Trading Strategy
▶️Reversal Trading Strategy
▶️Breakout Trading Strategy
▶️Gap and Go Trading Strategy
▶️Moving average crossover strategy

4⃣Trade Trigger

If your reason for trading is present, next we need precise event to make an entry.

This trigger can be based on
▶️Indicators
▶️Candlesticks
▶️Patterns
▶️Support and Resistance Level

Example: RSI indicator dips below 70 for reversal. (see image below)

5⃣StopLoss(SL) - As you enter the trade, first decide your SL.

SL can be based on
▶️Ticks/Pips
▶️Capital Risk
▶️Indicators

Example: ATR based SL. (see image below)

Note: SL should be based on something measurable and not just randomly chosen

6⃣ Price Target (TP) should be based on the tendencies of the market you're trading

TP can be at
▶️Support/Resistance Level
▶️Trend/Channel Line
▶️Derived from Pattern
▶️Indicator

I choose ATR based TP (50% ATR value of previous day minus SL).

In this case, ATR was 43. The TP was {(43/2)-4.75} = 16.75

When the price is at All time high (ATH) or All time low (ATL) or it crossed your initial target price and if you are not sure of next (TP).

In that case better to use Trailing StopLoss (TSL).

7⃣ Reward-to-Risk

When taking a trade, you should still consider if the profit potential is likely to outweigh the risk.

Aim for Reward-to-Risk ratio of 3:1 or as per your trading plan to be successful trader.

Thank you for reading.

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