[Lessons] Trading approach 2018

Realization of mistake

I  have interchangeably used "tactics" and "strategy" for my earlier posts, this should be better categorized.

• Strategy. Broader context, the thinking behind why i do something.
• post 1
• post 2

• Tactical. Drill down to the details, how to go about trading.
• post 1
• post 2
• post 3
• post 4

The Aim

Create a system that has the least spur-of-the-moment decisions to make, and least mental strain on myself.

Revised Trading Approach 2018 - The Tactics

The gist of trading, is to have an edge and let it run its course to get the expected returns. 

* note the bold and italicised words*

An edge. It is where you have a better probability than random guessing. Some people use fundamental analysis (FA), I use technical analysis (TA). Trading chart patterns, following the trends and scaling up, there are many thing to learn to gain an edge! I will explain. 

• Chart Patterns. Price patterns the result of human behaviour. Human behaviour tend to be reflexive, and consistently irrational. Just need to note the general shape and what it means. (higher chance of guessing right directions).
• Flags.
• Converging triangles.
• Following Trends. Trading in the general direction takes away most of the guesswork. Identify the direction in a definitive and simple way, based on fixed criteria: i) price above 200 moving average(200ma) and ii) positive gradient moving averages. I also bet on it turning upwards (zero turn positive) because potential benefits are huge, though it is also less likely to be true.
• Scaling-up. Scale-up only when you have a profit buffer and there is a chart pattern setup. Follow sound rules: i) add a fraction of your current holding's position size; ii) add when you have at least 15% profit; iii) set stop-losses for each add-on. This will help you amplify your wins, because you not only want to be on the correct side of the trade, you want to capitalize on it too!   

Let it run its course. This means to be able to keep trading and letting your edge play out. This requires discipline and risk management. 

• Time frame. This refers to how long we intend to be in the position. It depends on personality. Some people can check their position once every week, some need to check every hour. for me, i check at 11am and 4pm.
• Plan Trades. Know exactly what to do when it happens. This is best done with a calm mind, after trading hours.
• Setting Enter Price (EP). Set it where price would confirm your expected price direction. I use 0.5 X Average True Range (ATR) above the resistance to confirm.
• Setting Stop Loss (SL). this is normally horizontal support with a buffer of 1ATR(14) below it. Logically speaking, if the horizontal support is breached by more than 1 ATR, then  my expected action is invalidated.
• Target Price (TP). It is arbitrary. Those who trade a range set it at a region of strong resistance. Those who trade with the trend, the price where the trend no longer in your favour. 
• Sticking to trade plans. Plan your trades out of trading hours in a calm state of mind, to avoid the fear of missing out (FOMO). Entering poorly thought out trades is akin to gambling.
• Position sizing. Optimising number of trials before financial ruins (staying in the game). This allows you to have a huge chance of surviving