We are an education company which strives provide high quality training to avid traders and investors. We help you learn the craft of trading successfully in today’s age of highly volatile markets. We achieve this by focusing on the importance of having a complete Trading Process the secret of professional traders! In this post we answer 14 most pertinent trading questions to both beginners and experts alike! So dive in and enjoy this post all the while picking some highly practical tips, you can apply to your trading today!
A Trading Process is a guide which shows you what to do throughout your trading journey. It guides you at every step of the way. Be it making good trades or controlling risk effectively or learning from the mistakes you made or repeating those things which yo can do better than others.
Most of all it ensures that you don’t stray too far away from your trading plan, and make continuous improvement in your trading.
At GTTE we believe a Trading Process consists of 3 components and each is essential for successful trading. We call it the Process Funnel and each stage is vital for your trading success. Look at the infographic on the side. Lets look at each component in detail. The three components are discussed in detail below.
A trading strategy is something which guides your trading actions in the markets. Professional traders never step into the ring without a trading strategy. It is not about where to buy/sell or where to exit. It tells you what you should focus on in the current market condition.
Naturally, if the market condition changes so will your strategy.
A few examples of trading strategies used are,
As it can be seen not all the trading strategies can be applied to the markets simultaneously. Als, not everybody can be good at all the trading strategies. What you need to do is to find a trading strategy that suits your personal trading style. And then trade only when the current market conditions allows use of your choice trading strategy. Lets see how you can use this crucial part of your Trading Process!
The best way to do this is to dig into your trading records. If you don’t have any just get the trade reports from you broker for last 10 – 20 trades and see the ones which did well. Find that point on the chart and then reverse engineer what your logic was to take the trade.
If all this seems too difficult then you can simply start keeping records of your trades from today and track the profitable ones. Then you can note down the market conditions present at the time of trade like trending, sideways, etc. And also the trades you were comfortable with. All this when you superimpose on the 3 trading strategies mentioned above, you will come to know which suits you better.
Once again good to see your keen interest. Now that you know why trading strategies are so important and how to select one for yourself. Let’s dive into the individual trading strategies and see some examples for each one of them.
So have fun while learning about these trading strategies. Having a trading strategy covers one-third of your trading, knowing how to execute it covers another third. That leaves the last third and those are the tools. We will go through each one of these one by one.
It’s OK if you are MAD, but there must be a Method To Your MADNESS!
A trading method consists of rules and guidelines which you must follow to execute your strategy. It is an important part of your Trading Process!
So at GTTE we first and foremost select a strategy based on current market conditions.
Then we apply the Entry Rules. We apply these entry rules not based on some rigid set of rules but based on logic. This trading logic comes from Auction Market Theory (AMT).
So even though we track important reference levels in the markets, we don’t blindly buy/sell once we reach these levels. Instead we use AMT logic to see what the Smart Money is doing and then try to match out trading with them. Both entries and exits.
But we do all this while staying within the Risk Limits that our capital permits.
This is a crucial step of your trading method to any hope for lasting trading success. It took me more than a decade to understand what exactly a strategy is and how does it help us in our trading. I wont spend much time here just visit this to know more about strategy in trading.
If you have read it then may be go through the 3 strategies I have discussed for your benefit,
These are the patterns which generally repeat when you reach important reference levels. Now an important reference level should be marked based on logic not on common wisdom.
One example of logic is to find the areas where Smart Money committed themselves. Because when price retests these areas Sm is expected to defend their positions. The intent showed by Sm at these levels gives us our trades entries.
Relying solely on past observations can become frustrating when numbers catch up to you and you get those streaks of pattern failure. Using logic instead of past observations will help you judge the relative significance of the reference areas as well as whether the SM is doing a good job of defending their commitments.
Order Flow Charts become the perfect “hero support” to Market Profile charts in this case. So once again having useful and reliable tools in your arsenal is critical to trading success.
For exit we will be taking a look at “Risk” but not the usual risk associated with Stop Loss and Money Management. This risk as Jim has put it in his books is the risk of holding a position in the current markets.
Auction Market Theory states that an auction moves up to find sellers and moves down to find buyers. Once an up auction finds sellers it either goes sideways or reverses. And that is precisely what we use when we are looking for an exit.
We usually exit a long when the buyers give up (normally leads to hitting of stop loss) or when the sellers over power buyers (normally happens when we reach an important seller reference).
If you buy and buyers aka SM is not buying with you, the weak holders wont be able to push prices higher or even hold them at current levels. In such a scenario it makes little sense to hold on to your longs.
Also when price reaches an important seller reference and it looks like SM sellers are defending their commitment then there is no point in clinging on to hope of some additional precious shekels.
Once again we don’t look at risk the same traditional way. We believe that no amount of calculating the probabilities will help you manage risk. The best way is to use logic to assess the risk of holding a trade or not being in the markets. This we do when we are talking about the risk of entering, exiting or not entering a trade.
When we talk about risk capital, then we follow the rule of thumb of not risking more than 1% of your capital on any one trade. For small accounts this becomes a real roadblock.
So in that case I found that if you have a stable trading process which can be applied on any time frame. Then by simply reducing the time frame you trade on you can reduce the rupee risk you have to take. For instance if you are scalping Nifty for 5-10 points, then your risk even for a R:R of 1:1 becomes 5-10 points.
Instead when you try to take swing trades your SL can easily become 50-100 points as the average trading range in Nifty itself is around 80 odd points a day.
Trading method is one of the most important element in your trading process. It forms almost 33% of your trading process and we must get it right.
There are many ways you can handle the issue of entry exit & risk. Click on the link to view how we do it at Get That Trading Edge!
This is one of the most exciting part of the whole trading process. Because this where we try to differ from most of the traditional technical analysis techniques. Also the Smart Money wont do what everyone else is doing.
Also keep in mind that professional traders don’t do different things they do things differently.
To keep track of our trading we update a Trade Log and a Traders Journal daily. We then refer to these records regularly (End Of Week, Month, etc) to learn how we traded and find out areas of improvements.
More often than not we see something which we have done great and we try to repeat it as much as possible to get the most out of it.
Analyzing the markets using the tools mentioned is as much fun as it is profitable. These tools help us in our foremost objective of trading with the Smart Money.
Trading Tools are an important part of your Trading Process. Having a great tool is almost as important as having a good Trading Method or a correct Strategy based on current market conditions.
Selecting a Trading Tools is a personal preference. I personally use Market Profile Charts, Order Flow Charts and my own adaptation of VSA and Volume Profile which I have named VORACL system. Lets dive into a few pertinent questions regarding Trading Tools.
There are primarily 5 types of traders as shown in the image and each has his own way of trading, time frames, objectives and targets. It is the interaction of these different types of traders that makes trading so fascinating and utterly confusing at times. That is when you need to find a great trading tool. One that will guide you through the confusions and fascinations of the trading world.
Here also selecting a trading tool is a personal choice. Some like the classical chart patterns proposed by Edwards and Magee (The first book I read on Trading). Others prefer to trade using momentum indicators proposed by Martin Pring (I read his books extensively in my early trading days). Some prefer an advanced pattern recognition techniques such as Elliott Wave Theory (R N Elliott and Robert Prechter) or Neowave (Glenn Neely). Still others prefer the Harmonic Patterns (Suri Duddhela). Some use Price Action Trading (Al Brooks). Where as some use automated trading techniques to trade in the markets.
I personally use Market Profile (Peter Steidlmayer and James Dalton) to find low risk intraday trade opportunities. Sometimes when the markets set up right I go for Short Term as well as Short Swing Trades too. Watch my Webinar Video on Market Profile here…..
Also along with Market Profile, I use Order Flow Charts for timing my trades. Order Flow is a very important tool if you want to see behind the obvious price moves. It is indispensable if you want to know what Smart Money is up to. Read more about this fantastic too here…..
I use VORACL system which is my interpretation of Tom Williams Volume Spread Analysis along with Volume Profile to find especially tasty entries in the markets.
And above all I use Richard D Wyckoff’s Accumulation – Mark Up – Distribution – Mark Down cycles for analyzing which stage the market is currently in and then select my strategies accordingly. Read More…..
A trading tool sometimes takes a lot of time to set with the trader. During this period a trader jumps from one tool to another because of inconsistent trading result. The haphazard trading results are not because of the wrong trading tool, but because a trader does not give sufficient time for the tool to set in.
I have selected some of the tools that I use, you can click on the read more tags above to go even deeper into those tools. I hope you find them useful in your trading.
Before selecting a Trading Tool remember you need a Trading Process and Trading Strategy and Trading Method.
Dean is a full-time trader and mentor, with experience of over 12 years. He trades using Market Profile and Order Flow Charts. Dean absolutely loves to trade. He says “matching my wits against other traders is the most exciting game ever and I get paid to play”. He also likes sharing his learnings and mentoring committed traders.