TRADING TOO COMPLEX STRATEGIES WITH MANY INDICATORS

Many times, I get question that whether a trader should use complex indicator-based strategy or simple buyer seller price action-based strategy. In this blog I am going to answer that question.

Firstly, what is strategy and why we need it?


According to my experience, a trader needs strategy to convert his/her analysis in a proper system which helps him in live market to make entry / exit decisions.

Trader use strategy for making process easier not to make It more tedious. So, while constructing strategy we should keep in mind that we are going to use it every day and a strategy should give you confidence in live market to execute trades rather than confusing you by giving false signals or contradictory alerts. The problem with indicator-based strategy is that they don’t consider broader market trend and over all day’s sentiment in picture to project next price move.

Complex vs Simple

Trader use strategy for making process easier not to make It more tedious. So, while constructing strategy we should keep in mind that we are going to use it every day and a strategy should give you confidence in live market to execute trades rather than confusing you by giving false signals or contradictory alerts. The problem with indicator-based strategy is that they don’t consider broader market trend and over all day’s sentiment in picture to project next price move.


Market is a big pool and normally all stocks move in line with each other when market is trending. This trend and momentum can be understood very well by buyer seller price action. So according to me a simple price action-based strategy will perform better in long run if a trader is looking for consistent results. I am using price action-based strategy from past 6 years of my full-time trading. It works great in all market as you are seeing raw price which is generated by interaction between buyers and sellers.


Keeping trading process simple yet effective!!


I will explain exactly how to reduce it all down to bare minimum and keep it simple and effective.


Step – 1 Price structure


To trade effectively, one need proper price stricture as pre requisite condition. In this constant flow of information over-flow, trader needs to filter out all non-relevant information on price chart. A “price structure” is well defined set of conditions which gives clear indication that a trade could happen.

For e.g:

Many times, I trade morning breakouts from my pre-selected stock. This is a breakout trade. I have put proper volume conditions, prior structure confirmation and entry level ready before taking trade. I keep price little below the desired level. Until my alert is not triggered, I am relaxed and focusing on nothing but finding other trade opportunity.

By having proper defined structure, you keep your trading simple. You aren’t concerned about whether the price falls, rallies, or what the news is saying.

 

Step – 2 Maintaining POSITIVE RISK : REWARD


Risk is amount of money you are willing to lose for Reward that is going to generate if that trades moves according to you plan.

I have defined exactly where/when I will enter the trade. During this time there’s nothing else to think about—initially I find my setup, that is it; in the next step, I define my entry point. Now I need to verify that should I take the trade or not. If the potential reward based on the setup is more than the risk, I execute the trade when the trade trigger occurs. If the potential reward doesn’t outweigh the risk, I ignore the setup and start looking for another god setup with favorable RISK : REWARD.

Being aware of economic or company specific news events is part of the risk/reward assessment. Since we can’t know in advance how the market will react to an economic release, avoid taking (or being in) trades 10 minutes before or after a high impact economic/company-specific News. I check an economic-calendar before the trading day begins, so I know the exact release times. I then block off those times on my charts, so I know not to take trades.

Final Note:

For me at any given trading day, I focus on things that I have planned for. I focus on stocks which I have found a day prior through PRICE ACTION STRUCTURE and live market scanner alerts only. All other information is irrelevant.


Then, I only focus on finding trade setups on these stocks. Once I’ve found a trade setup, then I only focus on finding where the trade trigger is. Once I know the trade trigger, I can determine where your stop loss order and profit target will go.

Many people on Instagram ask me for target and stop-loss. This is the reason I cannot provide this info a day prior. For trading successfully one needs to decide stop-loss and profit target while taking entry for maintaining positive RISK : REWARD.

Based on the stop-loss and potential profit target, (and/or the win rate of the strategy) I focus on whether I’ll take the trade when the trade trigger occurs. If the trade makes sense, I execute the trade at the trade trigger. If the trade doesn’t make sense, I will keep looking for new trade setup.

This is how I trade and most other successful trader I know trade.

I hope above blog have added some insights on how to simply trading.

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