1. A winning trading system must either be designed to have a large winning percentage of trades with small losses or big wins and small losses.
2. Your trading system must be built on quantifiable facts not opinions.
3. Start with the weekly price chart to establish the long term trend, and then work down through the daily and hourly charts to trade in the direction of that trend. The odds are better if you are trading in the direction of the long term trend.
4. The more times a support or resistance level is tested, the greater the odds that it will be broken. Old resistance can become the new support, and the old support may become the new resistance.
5. Moving averages can quantify trends and create signals for entries, exits, and trailing stops.
6. Bull Markets have no long term resistance, and Bear Markets have no long term support.
7. “The larger the market gaps, the greater the odds of continuation and a trend.” – Linda Raschke
8. “As long as a market is having consecutive strong closes, look for an up-trend to continue. The up trend is most likely to end when there is a morning rally first, followed by a weak close.” – Linda Raschke
9. Above the 200 day moving average is where bulls create uptrends. Bad things happen below the 200 day moving average; downtrends, distribution, bear markets, crashes, and bankruptcies.
10. “It is much easier to watch a few than many.” – Jesse Livermore
A stop loss is a risk management tool that keeps your losing trades small. The point of a stop loss is defensive and to eliminate big losses from your trading.
Here are ten tips for thinking about when placing a stop loss on a trade:
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Your stop loss should be a part of your trading plan on entry not figured out later.
The best time to set a stop loss is before you get emotionally wrapped up in the outcome of a losing trade.
Higher highs & higher lows define the market is in an uptrend. Lower highs and lower lows define the market is in a downtrend. Trading inside a defined price range a sideways market. Defining what type of market you are in helps you go in the direction of least resistance.
Where price is in relation to the moving average in its time frame can show the current trend.
Research historical chart patterns to understand what is possible in the market and how markets change from uptrends to downtrends, and from volatile to range bound. Use this insight to structure profitable trading systems using price action signals.
Backtest your trading signals to see if they had an edge in the past.
Don’t do things half-way. Only do things that you are passionate about. If you can’t do something with all of your heart, then continue to look for your true calling. Then do it to the best of your ability.
Know where you are going. If you don’t know where you are going, your decisions & destinations will be a result of your environment. Goals take time, perseverance, & effort. Most people never accomplish anything because they quit too early, don’t work hard enough, & don’t finish.
Traders must have the perseverance to stick to trading until they are successful. Some of the best traders are ones that had the strength to push through the pain, learn from their mistakes, & keep at it until they made it. All profitable traders had to survive the learning curve
Great traders cut losing trades short. The ability to accept that you are wrong and put your ego aside is the key to professional success. Setting stops is one of the top skills for a trader to learn. They need to keep losses small but give room for a profitable trade to play out
Trading will educate you about yourself. You will learn your strengths and weaknesses.
Learning to trade well will make you a better person. Good traders do well managing their ego, fear, and greed. Also risk management will help in other areas of your life.