I have been a professional trader for over 30 years and have a fascination for all things trading. I have studied hundreds of trading systems and models and what I have learned firsthand is that there are 6 key elements that had to be in place regardless of the trading system or trading methodology one uses for trading.
1. Have a trading plan that governs all your actions.
Your trading plan will crystallize exactly what you’re trying to do as a trader, but don’t view it as set in stone. Rather, your trading plan will grow and change as you gain experience and develop your own trading style.
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Your trading plan also doesn’t need to be a complicated document
- You simply need to define what markets you’re going to trade
- How you’re going to trade them
- How long you’ll hold position
- What times of day you’re going to trade
- Your trading style
- How you’re going to manage your risk
- How you’re going to continue developing as a trader.
By clarifying and explicitly stating these 7 key points, your trading plan will serve and support you in your trading career.
2. Be disciplined in implementing to that plan.
I recommend trading a model or a system where the rules are clearly defined, making it easier to implement them. Whatever trading model or trading methodology you use, know the guidelines and rules, and use them.
3. Learn to patiently wait for the highest probability trades, based on the model you have chosen to use.
4. Allow the trades to come to you, instead of chasing trades.
5. Create structure in your trading with set goals, rules, time frames, work hours, and risk control. Treat your trading like a business not a hobby.
6. Have a trading foundation. The foundation for all my trading is what I call “Top-Down Market Technical Analysis”.
This method of analysis allows traders or investors to analyze the market from the MACRO BIG PICTURE all the way down to the short term or intra-day. The top-down approach begins at the top and the first step is to determine the Big Picture trend. I do this using our trading model the “Power Cycle Trading Model™”. Once this new cycle trend is identified, then as an investor or trader you can plan on how to allocate your capital.
If the Trend is Up you would probably want to be more aggressive in buying market dips and holding for greater returns. If the Trend is Down you would want to be less invested with a larger cash position. You would be more defensive with any buying more short term in nature and with shorter profit targets and tighter stops.
Five time frames are used for this analysis:
- MACRO MARKET TREND – measured by the Monthly time frame
- LONG TERM MARKET TREND – measured by the Weekly time frame
- MEDIUM TERM MARKET TREND – measured by the Daily time frame
- INTERMEDIATE TERM MARKET TREND – measured by the Hourly time frame
- SHORT TERM TREND – measured by minutes & ticks time frame
Current trends based on the Power Cycle Trading Model™, as of March 13, 2013:
Macro Trend ~ Measured by Monthly Chart in Up-Trend since 1/2012
Long Term Trend ~ Measured by Weekly Chart Neutral since 2/8/2013
Medium Term Trend ~ Measured by Daily Neutral since 3/12/2013
The end result of using these 6 elements in your trading is that you make decisions based on the model or trading methodology you are using, NOT the emotions of fear and greed that often sabotage traders leading them to overtrade and give back profits.
If you would like to learn more about the Progressions of a Successful Trader visit me at powercycletrading.com