people of informedtrades.com. your thoughts please

i am to open two accounts. one to trade equities] and one with fxcm.com.[of mini contracts at $10k].

1.keeping my risk management at 2%.

2. the no.of shares i can purchase will be determined by my maximum $ risk divided by the difference between my entry and initial stop.

3.entry into the market will be based on my interpretation that the 'financial instrument' is in a trend.i may look for a pull back or a breakout or a sign from god. exit will be based on the price going against me and stopping me out or a moving stop if the trade goes with me.

4.indicators: trend line to get the direction of the trend. support and resistance to identify possible barriers. ATR to help with placing stops, stochastic to help with sentiment and ADX to see the strength of the trade [ +D and -D to see what mood the buyers and sellers are in]

of course they'll be lots of chanting and candles with music of the ocean in the background

as for forex,

similar thing. my risk is worked out at $10 a pip when the usd is not the base currency. i can then divide my maximum $risk value by the cost of each pip, to identify maximum amount of pip movement from the entry price that would not exceed my maximum $risk.

ok dave well thats the long and the short of it [unintentional pun]. what do you make of my thought process?

Hi Pan,

Good to hear from you.

The thing that I like about what you have written below is that it seems that before you start trading you are trying to develop a plan which you are going to base your trading on. Secondly I like that you are showing this plan to others and seeking feedback as I think putting in the effort to develop a solid plan and then seeking and being open to input on that plan from others are two of the main keys to success in any business including trading.

So from what I can tell from the below it seems that you have outlined your risk management and position sizing strategy which is based on the % Risk Method outlined in our Free Basics of Trading Course.

I think most traders would consider this a reasonable method for determining the maximum risk and position size that you are willing to do on a trade.

After this part however your plan seems to get a little non specific. You mention that you will use trend lines to get the overall direction of the market. What time frame will those trends be used on?

You mention that you will use the ATR to help with placing stops. How exactly do you plan on doing that? Same question for the ADX.

How about profit targets how will these be determined?

So basically here I think you are moving in the right direction but just as you would not open up a restaurant before deciding exactly what was going to be on the menu and why in my opinion a trading plan is not complete until you have defined exactly what you are going to be doing and why.

If you have not done so already I would encourage you to watch my video on the 20 components of a successful trading plan in the free basics of trading course as this may be of help as well.

If you have any other thoughts on this or would like to come back with some more detail I would be happy to comment.

Lastly, thanks for sharing this with the community I think these types of conversations are valuable for everyone and we can all learn a lot from them which is the point of this site. With this in mind if anyone else has any comments or questions on this one please feel free to post them in the comments section below.

Best Regards,
Dave

thanks for taking a look at that dave. my thoughts on deciding whether or not it is a trend will be based on a straight line being drawn along points of support [long] and resistance [short]. my time frames will depend on whether i am looking to get in and out quickly[day trading] or for a longer period.

for a longer period i will be looking at weekly charts for trends and daily charts for entry points.

for day trading i will be looking at weekly, daily and 15min charts.

the average true range ATR will help me recognise the volatility of price at the time frame i am looking to enter the market. from there i can decide whether my initial stop will be far enough away as to avoid being stopped out prematurely.

i would cross reference that with support and resistance and place my stop below a support point and outside the ATR when considering entry into the market.

my understanding of the ADX is to give an indication on the strength of the trend. this will help me reaffirm with my other analysis entry into the market.

my idea of targeting profits was to follow winning trades with a trailing stop and get out of my position when the market turns against me.

any thoughts?

best wishes pan

Hi Pan,

Ok I like the direction we are moving here in the sense that we are getting more details nailed down with the plan.

A few more questions that I would have:

1. What is your reasoning behind trading on both long and short term charts?

2. Do you have the time to follow the market consistantly enough to make short term trades or will there be other distractions that hurt your ability to do this such as a day job or family obligations?

3. One other thing I noticed from your original post is that you say that you are going to be trading mini contracts but then you mention that your pip value will be $10. Should that not be $1?

Best Regards,
Dave

hey dave . thanks for the rapport.

the idea for me behind looking at different time frames is to identify a trend in the larger time frame and then look for a pullback in the shorter time frame [but in the direction of the trend], for an entry signal. for me its about confirmation that im going with the flow rather than against it.

day trading is a practical option for me. with that in mind im also open to the opinion that day trading or indeed trading is not for me. just as money management should be a key positive ingredient in a good trading system, so should the notion that trading may not be for me.

i think this may be a good time to quote bruce lee "research your own experience, absorb what is useful, reject what is useless and add what is uniquely yours".

yes to the $1 per pip. more studying needed for me.

pan