After a round of seminars, one thought struck me. Many traders are asking the wrong questions; as Anthony Robbins maintains, you need to ask the right questions to succeed.
What are the right questions when it comes to monitoring the landscape for a trade? I hold that the first questions for ‘other timeframe traders’ (all timeframes except those entering and exiting on the same day) are:
- What is the trend?
- Is it likely to continue or change?
If you are a day-trader, you need to ask one more question:
- is the market today, rotational or one timeframe?
The answers to these questions provide your strategy. What I noticed at the seminars is that few traders asked the questions. By not asking these questions they failed to place the probability for success on their side.
Once you have a strategy, you need to enter a trade. This involves:
- A zone for entry
- A setup and
- A trigger and initial stop loss level.
Entry zones differ depending on whether you are a breakout or responsive trader (buy dips in uptrends, sell rallies on downtrends). As a breakout trader, I’ll be looking for a zone that tells me that the breakout is genuine. If I were a breakout trader, I’d be a buyer above the Maximum Extension of the Primary Sell Zone and a seller bellow the Maximum Extension of the Primary Buy Zone.
I am a responsive trader, believing that responsive activity provides more of an edge than breakout entries. I use a myriad set of tools to identify a confluence zone. But the minimum price is the line turn price of the timeframe I am trading.
In Figure 1, 7615 is the 5-period swing line change price – at that price the line will turn up. This price is the minimum retracement.
Once I have a zone, I look for a setup bar. A breakout trader would look for some sign that a breakout would be valid e.g. a contraction of price action suggesting that the breakout will be a strong one. As a responsive trader, I look for patterns that tell me a zone will hold.
That’s it for today. I’ll continue the thread tomorrow.
Figure 1 Line Change Price