Maybe you are learning to trade or maybe you have been trading for a while and are still looking for a successful recipe for trading the markets?
Either way, you will benefit from watching this video below.
In the video I discuss a trade that I took this morning on the DAX. The trade was exactly in line with the principles and rules that I lay out in my Gold system.
Principle of the ratio between Reward and Risk
Having worked for 20 years in the financial markets before I set up my business at Excellence Assured I have been well aware of the principle of the ratio between Reward and Risk.
Everything that we do carries a risk and even doing nothing carries risks. In trading the risk is the space between your entry position and the level at which you determine that you will get out of the trade for a loss.
It take some experience and knowledge of trading to know the correct level to choose and it must have logic to this decision.
The reward in a trade is the level at which you take profit.
Both of these levels must be known at the outset of the trade to evaluate whether the trade is worthwhile. If you are not able to judge this because you do not understand enough about trading or because you are not paying attention at the time that you take a trade, then the trade is not worthwhile.
I show you where I determined that my stop should be on this trade and explain why it is the right place for it.
Normally the trades within my Gold System have very small risk in terms of the number of points and I expect that if I made the right decision the trade should move into profit straight away. This is a comfort in the system.
In this trade I was able to exit for a profit at a logical level where price had been recently, this is ideal. The reward in the trade was 5x the risk.
This type of reward:risk ratio gives a trader a huge advantage over the market. It means that the trader can have several losses to each win and still make money.
Combine this with a good win probability and you have a winning system.
Every great system still needs a great operator to be workable and this is where we come in, you and I as the traders.
Multiple timeframes – confluence
When I am trading I am using everything at my disposal to assess the market.
I use two timeframes to give my trades perspective. The trading timeframe is where I make my final assessment and the master timeframe is where I find the trend and get confluence for each trade.
When momentum is simultaneously good and consistent on both the Trading and Master timeframe, then I wait for price to misbehave and move against prevailing momentum, I wait until price reaches a good level of Context and then I trade.
Context for a trade
I use the EMA indicator for the context in the trading timeframe. When price is at or close to an EMA and all other things are good, then this is good context for a trade.
I use the 8 & 20 EMAs on both timeframes and I refer to the gap between the two as the River of Value.
Institutional traders use the principe of value in their trading and so it makes sense for us to do it too!!
Content for a trade
If I have a trend and a pullback in the trend and momentum is still with the trend on the master timeframe then I look for the price to give me a clue that the trend is resuming. This is content.
Content can sometimes be found around the river of value as price resumes the trend. This shows up in the form of spikes and rejection from the EMAs. This is where I choose to enter my trades.
Enjoy more in the video. Any questions let me know?