Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Recommended Posts

Being prepared to take decisive and timely action is key to being a successful trader. The inputs to making a decision must be quickly recognized in order to formulate your action plan. Defining possible scenarios, and training yourself to recognize market conditions is the first step in making the decision. Without a correct and complete assessment of the current conditions, and the possible outcomes, a rational decision can not be made.

 

I don't like being "caught by surprise". This article will attempt to define basic and generic trading situations and then list the questions that must be asked in order to make a good decision. I am calling this a "Decision Cycle", and it is similar to a decision making flow chart. I'm trying to create a guide that is precise and well defined. I can then memorize the "Decision Cycles" and train my mind to process market conditions in a very structured and unbiased way. The goal is to create a very mechanical and "robotic" decision making system, but hopefully not at the expense of common sense. For the decision system to avoid serious flaws, it must not have an incomplete list of possible trading situations. Included is a list of possible generic trading situations we might all find ourselves in.

 

In the past, I've created decision making documents that focused too much on details specific to my indicators and market conditions. This created an overly complicated and lengthy document that I ended up never using. When I changed the focus to something more generic and basic, I started to realize that there are only a few possible trading scenarios that I can get myself into, like, . . . "Did I make a good entry or not?" It's a simple and straight forward question. Nothing complicated. The analysis specific to my indicators can be slightly more complicated, but if I start with a simple question, then the decision making is more straight forward.

 

But before defining the possible trading situations, I'd like to just list what I'm calling the "Decision Cycle".

 

1. Establish current price direction and trend.

2. Establish the current status of your indicators.

3. Enter trade on signal

4. Determine which trading situation you are in, from the list of possible trading scenarios.

5. Follow the guidelines for that trading situation, and then branch and cycle through the decision making process.

6. Once critical and high priority decisions have been made, immediately re-evaluate the current trend and indicator status. Decide ahead of time what the possible next scenarios might be, and what possible combinations of different signals might mean.

7. Once a new trade signal happens and/or the trade is exited, re-establish what the current price direction, price trend, and indicator status is. Match the current market conditions and trade situation to your defined trading scenarios and follow the plan

COMPONENTS OF DECISION CYCLES

 

  • ENTRY
  • EXIT
  • RE-ENTRY - IMMEDIATE
  • RE-ENTRY ON RETRACEMENT
  • REVERSAL
  • GOOD ENTRY or GOOD RE-ENTRY
  • BAD ENTRY or BAD RE-ENTRY
  • GOOD EXIT
  • VIABLE, BUT LESS THAN OPTIMAL ENTRY
  • PROFITABLE, BUT LESS THAN OPTIMAL EXIT
  • BAD EXIT
  • TWO BAD EXITS IN A ROW
  • THREE BAD EXITS IN A ROW
  • STATE OF MIND CHECK
  • RESET

 

 

I don't think that the above entries and exit's need to be defined. They are self-explanatory. But I do want to note something about the "BAD EXIT"

 

  • BAD EXIT - I'm not defining a "Bad Exit" as a loss. You can't have 100% winning trades. So not every loss is a "Bad Exit", . . . it depends. A loss on a trade could have been an excellent trading decision. A "Bad Exit" is when you let the loss run more than you should have. And letting the loss run more than you should have is about making a poor decision. And making a decision in a bad situation is based upon how negative results affect you emotionally, and then how you deal with the discomfort. So a Bad Exit is defined as much by how well or poorly you dealt with negative results and discomfort, as it has to do with the amount of the loss. In fact, the amount of the loss is almost immaterial if it is within an allowable range of your strategy, and your strategy makes money.

 

Definitions:

  • Confirmation - An indication that the price is moving in the direction of your trade.
  • Reversal - exit one trade and immediately re-enter another trade in the opposite direction.

 

DECISION CYCLES

  • ENTRY
    • Enter on Signal
    • Watch for Confirmation
    • Confirmation happens
      • Manage trade - Switch to "GOOD ENTRY" cycle

      [*]Confirmation does NOT happens

      • Exit or reverse immediately
      • Switch to "BAD ENTRY" cycle

     

     

     

    [*]EXIT

    • Before the exit happens, determine whether the next exit could be a reversal point.

    • Exit or Reverse on signal

    • After exit or reversal determine what the trend status is
      • If the exit was a reversal, then switch to REVERSAL cycle

     

     

     

     

    [*]RE-ENTRY

    • Weakness in trend and/or Retracement possible
      • Determine how big the retracement could possibly be, and wait for entry signal

      [*]Watch for Confirmation

      • Manage trade - Switch to "EXIT" cycle

      [*]Confirmation does NOT happens

      • Switch to "BAD ENTRY" cycle

     

     

     

    [*]REVERSAL

    • Look for confirmation of trend reversal

    • Trend reversal confirmed
      • Switch to GOOD ENTRY cycle

    • No reversal confirmation
      • Immediately exit or reverse back in original direction
      • Switch to BAD ENTRY cycle

     

     

     

    [*]GOOD ENTRY

    • Take the time to re-evaluate all your indicators, and the long and short price trend
    • Evaluate what the next phase of the trend could be, retracement, reversal, conflicted or consolidation.
    • Switch over to the exit cycle

     

     

     

    [*]BAD ENTRY or BAD RE-ENTRY

    • Look for signs of a conflicted market or price consolidation.
    • Price consolidation will mean a choppy, and sideways price range that can be confusing and difficult to trade. Evaluate the longer trend.
    • A conflicted market creates seemingly undefined trends, with no real direction and no discernible reason for price behavior. It may be a period of indecision. Check your state of mind, and ability to deal with the confusion.
    • Evaluate long trend
    • Long trend still the same
      • Switch to VIABLE, BUT LESS THAN OPTIMAL ENTRY cycle

      [*]Long trend has failed or shown a reversal signal

      • Reverse

     

     

     

    [*]GOOD EXIT

    • Evaluate short and long trend status
      • Trend still valid
        • Switch to RE-ENTRY cycle

     

     

     

    [*]PROFITABLE, BUT LESS THAN OPTIMAL EXIT

    • The assumption here is that you either made a mistake and mis-read market conditions, or the price overshot a normally legitimate exit signal.
    • I often see situations where the price continues strongly, but then retraces. If you chase the price, you can get caught entering an order exactly at the wrong point. If you wait to long, you can miss the opportunity. But once you get into the mentality of chasing price and feeling bad that you missed an opportunity, you can start trading the wrong part of the price cycle.
    • If price overshot the exit signal, it could mean that there will be a substantial retracement in the trend.

     

     

     

    [*]VIABLE, BUT LESS THAN OPTIMAL ENTRY

    • Determine how big the retracement (drawdown) could possibly be, and whether exiting and re-entering would in the original trend direction would minimize loss and maximize profit.
    • If you decide to stay in the trade and take the draw down before the potential change in the direction of your trade, make sure that support or resistance (depending upon a long or short trade) for the retracement is not broken. You must have criteria for how much retracement is valid before it becomes a trend reversal.
    • Decide ahead of time what your action plan is for another, second price move against your trade. If you can not come up with an action plan based on signals, and the signals meeting a certain criteria, then exit the trade and switch to STATE OF MIND check decision cycle.
    • Watch for confirmation of the trend moving in your favor, if that happens, switch to the EXIT cycle.
    • Trade move against you to the point where it's obvious that it was a bad entry. Count this as two bad entries. Switch to TWO BAD EXITS.

     

     

     

    [*]BAD EXIT

    • RESET

     

     

     

    [*]TWO or THREE BAD EXITS IN A ROW

    • Are you in the wrong State of Mind to be making good trading decisions?
    • Switch to the RESET decision cycle.

     

     

    [*]RESET

    • Start from the very beginning of the process. Re-evaluate the short and long term status and trends of price and all indicators.
    • Wait for a viable entry setup.

     

     

     

    [*]STATE OF MIND CHECK

    • Can you recover quickly from the bad state of mind? If not, consider exiting existing trades, and take time to recover.
    • Reset

Share this post


Link to post
Share on other sites
i developed something similar to this for myself but this goes into more detail, thanks a lot!!!

 

I tried keeping it as generic as possible. There could definitely be more detail. Plus I may have overlooked some things, or not made the decision flow perfect. I was trying to create a foundational document to build upon.

 

Ultimately, I'd like to have some logic defined for an automated system. If I can get the decision making defined well enough to convert to code, that would make the programing easier.

 

Thanks for commenting. If anyone has suggestions, examples, refinements, etc. feel free to make a contribution. Hopefully I can apply some details of my strategy to this framework and make another post.

Share this post


Link to post
Share on other sites

This post further defines degrees of a bad entry.

 

  • Enter Long at the Peak of a trend
  • Enter Long on the first move down of a down trend
  • Enter Long Part way down a down trend
  • Enter Long Almost at the bottom of a down trend
  • Enter Long at the very bottom of a down trend

 

Each of the above situations has a different degree of risk and disadvantage. Entering a Long order at the Peak as price is going up, is a much worse situation than entering long as price is going down, slightly before the real bottom of the down trend.

 

Real trading is more complicated than the above 5 possibilities. A long trend may have a retracement, then continue in a second phase of the long trend. You may not know whether the downward move in price is a retracement of an extended longer trend, or the first move down in a down trend.

 

The optimal situation is that a trader has a way to determine what is a retracement down in a long trend, or the first move down of a down trend. Both those situations can look and behave identically or almost identically. And the distinction between the two may not be apparent until after the change has already happened. Therefore you will be reacting well after the optimal window of opportunity has passed.

 

Deciding to suffer "draw down" from the worst situation compared to the next to best situation can have quite different consequences. Taking some draw down on a long entry just before a reversal up can turn out well. Taking draw down on a long entry that was entered at the first down move of a downtrend can turn out badly, especially if the second move down is fast and large. Then if you mistake the second move down for the bottom, and wait, then you could suffer a third move down.

 

In the optimal situation, a trader can determine the difference between a retracement before the second phase of an extended uptrend, and the first move down of a down trend. Let's assume the optimal situation. Even under the optimal situation, the trader must react very quickly, and you may be late unless you guess at what the next price move may be ahead of time and enter orders ahead of time.

 

So even under the optimal situation, a slight loss, and then a less than optimal re-entry may be unavoidable.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Similar Content

    • By millonmethod
      Hello everyone!
      I am an advanced trader, with many years of experience (about 15 years - 10 living exclusively from this)
      I am going to give you some tips that you must know:
      There are going to be many people who tell you that trade is easy, that with only crossiing a line  with another one you will win a lot of money.... and that´s not true.  No, Sir, reality is far away from that. Many people who start arrive here with the hope that someone "gives them" a free method, they watch youtube videos thinking that this will give them the "strategy" and in a few days they realize that it does not work for them - they lose money - and then They go looking for a new one ... and so on. YES, IT´S TRUE YOU EARN IN TRADING, A LOT. BUT THINK: for a few to win (10% + any BROKER) many others must lose (90% people). YOU MUST HAVE A MONEY MANAGMENT FORMULA ( you can email me) People study so many years to live on this, not because they are dumb, but to know what they do, when, and have absolute effectiveness. It´s very easy to get lost here: do not disperse, jumping from one to another strategy WILL NEVER give you money, it will only waste your time and make you nervous when trading. PEOPLE WHO CHANGE THEIR METHOD CONSTANTLY : LOOOOSE ALWAYS.   If you have the knowledge to develop it, take your time and do it.  Always try it first on DEMO for at least 2 weeks! If not: search to buy a solid strategy (no you tube videos pleassse ! Avoid losing money! ) This is like any business, it requires some capital to start (capital = money in the broker + solid made /purchased strategy) If you are lost: I RECOMMEND YOU NOT TO WASTE TIME IN YOUTUBE, JOIN PEOPLE WHO HAVE EXPERIENCE AND IF YOU ARE GOING TO BUY A METHOD ... PLEASE !!!! DO NOT BUY 10 BAD AND CHEAP METHODS, SAVE MONEY AND BUY ONLY 1 BUT EXCLUSIVE AND MUST ALLWAYS HAVE SUPPORT !!!!!  Do not buy Signals! They never keep up with constant profits! One week will win and the next will lose. Nothing that does not depend absolutely on you will give you the money you are looking for. And if you do not have a strategy (made or purchased) do not even try PLEASE PLEASE PLEASE: DO NOT USE REAL MONEY! AT LEAST 2 WEEK DEMO FREE HELP HERE!!!!!  IF YOU FOLLOW MY ADVICE YOU WILL BE PART OF THAT 10% WINNER, email me.
      Have a nice trading day
       
       
    • By trading4life
      Hello, My name is trading4life.
      I just joined this forum.
  • Topics

  • Posts

    • If you decide to trade with IC Markets or Pepperstone or any other cTrader brokers, you can use Quantower platform for it.   
    • Date : 24th February 2020 Events to Look Out For Next Week 24th February 2020.The economic data has been and will continue to be overshadowed by the Covid-19 outbreak. The week ahead starts light, with the German Business Sentiment Index and Chinese Retail Sales on Monday. Leading indicators dominate the releases, but the event of the week is the US GDP and Consumer Confidence, which should shed light on whether the epidemic is visible in the data globally.Monday – 24 February 2020 Japan – Emperor’s Birthday Retail Sales (CNY, GMT N/A) – China’s retail trade growth stood at 8 percent year-on-year in December 2019. However a strong decline is expected for January, following the recent releases indicating that new car sales plunged 92% in China in February and airline traffic is expected to post the first drop since 2011 amid heavy virus containment measures in China. German IFO (EUR, GMT 09:00) – The German Business Sentiment Index released by the CESifo Group is closely watched as an early indicator of current conditions and business expectations in Germany. February’s numbers are expected to incline. Tuesday – 25 February 2020 Leading Economic Index (JPY, GMT 05:00) – The index is expected to show no change in the outlook of the Japanese economy and stand at 91.6. Gross Domestic Product (EUR, GMT 07:00) – German GDP is expected to have fallen by 0.3% on an annualized rate in the last quarter of the year, compared to 1.0% growth in Q3. Conference Board Consumer Confidence (USD, GMT 15:00) – Consumer Confidence is expected to have increased to 132.4 compared to 131.6 in the previous month. Wednesday – 26 February 2020 New Home Sales (USD, GMT 15:00) – The housing recovery should extend into 2020, assuming that mortgage rates remain low and Fed policy remains accommodative. The January new home sales should post a 2.3% climb to a 710k pace, after a dip to a 694k rate in December, versus a 12-year high of 730k in September. Trade Balance (NZD, GMT 21:45) – The Trade Balance measures the difference in value between imported and exported goods and services over the reported period. It will be interesting to see whether the New Zealand trade balance already posts an impact from the epidemic. Thursday – 27 February 2020 Gross Domestic Product (USD, GMT 13:30) – US preliminary GDP growth for Q4 is expected to trim to 2.0% from 2.1%. Durable Goods (USD, GMT 13:30) – Durable goods orders are expected to fall -1.5% in January with a -4.7% drop in transportation orders. Defense orders should fall by -29%, following the 101.4% December surge. Boeing orders declined to zero planes, following a dismal 3 planes in January. Tokyo Core CPI and Unemployment Rate (JPY, GMT 23:30) – Tokyo CPI is usually a good proxy for the Japanese economy’s overall inflation rate. In February, the CPI ex Food is expected to have stood at 0.9% y/y. The unemployment rate is expected to have climbed to 2.3% from 2.2% in December. Retail Sales (JPY, GMT 23:50) – Following a precipitous 3-month dive in October -December, due to a prolonged hit to exports from soft global demand and a slide in consumer spending following a nationwide tax hike, January’s Retail Sales are expected to drop to -1.1% on a y/y basis. Friday – 28 February 2020 Unemployment Rate (EUR, GMT 08:55) – The German unemployment rate is expected to have remained at 5% in February. Harmonized Index of Consumer Prices (EUR, GMT 13:00) – The German HICP inflation could rise to 0.3% m/m for February from the drop seen at -0.6% m/m last month. Gross Domestic Product (CAD, GMT 13:30) – A sharp slowing in Canada’s real GDP growth rate to 1.2% (q/q, saar) is expected in Q4 following the 1.3% Q3 growth. This should not add to the backing for a rate cut for the Bank of Canada. Personal Income (USD, GMT 13:30) – A 0.3% rise in personal income in January is anticipated after a 0.2% increase in December, alongside a 0.2% rise in consumption that follows a 0.3% December gain. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Andria Pichidi Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Can I use this EA on my Hotforex platform? How do I do that? 
    • Why are Market Wizard's insults and humiliations tolerated with impunity whereas our replies are sistematically banned? Just curious.
    • Bitcoin (BTC) Consolidates As Bears And Bulls Tussle Above $9,400 Support Key Resistance Zones: $10,000, $11,000, $12,000 Key Support Zones: $7, 000, $6, 000, $5,000 BTC/USD Long-term Trend: Ranging Bitcoin has failed to break above $10,400 overhead resistance. The bulls made two unsuccessful attempts at the resistance. In the recent one, the bears took the price to a low of $9,290 and then pulled back above $9,400. In the interim, the price is fluctuating above $9,400 and approaching the high of $9,800. As the bulls have failed to push above the overhead resistance, the pair may commence a range movement. Nonetheless, it is anticipated that if the bears break below the $9,400 support, selling pressure may resume. Meanwhile, BTC may continue the range-bound movement. BTC/USD – Daily Chart Daily Chart Indicators Reading: After the downward move of Bitcoin, the Relative Strength Index has also fallen to level 52. This simply means the coin is above the centerline 50. In other words, BTC is in an uptrend and it is likely to rise. Price broke the support line of the ascending channel. The uptrend will be in proper perspective only when the bulls break into the ascending channel. BTC/USD Medium-term Trend: Bearish On the 4- hour chart, Bitcoin now trades between $9,400 and $10,200 after the first breakdown at the $10,400 overhead resistance. The bulls tested the resistance at $10,200 twice , before the downward move. The large bearish candlesticks tested a low of $9,290. However, the small body candlesticks that follow are called indecisive candlesticks. BTC/USD – 4 Hour Chart 4-hour Chart Indicators Reading Presently, BTC is trading above a 25% range of the daily stochastic. That is the coin is in the bullish trend zone. The 21-day SMA and the 50-day SMA are sloping horizontally indicating a sideways trend. General Outlook for Bitcoin (BTC) From every indication, if the bulls fail to push above the overhead resistance, the price action in October and November will repeat itself. For the past three days, BTC is still fluctuating above $9,400. Instrument: BTC/USD Order: Sell Entry price: $9,700 Stop: $9,900 Target: $8,400 Note: Learn2Trade.com is not a financial advisor. Do your research before investing your funds in any financial asset or presented product or event. We are not responsible for your investing results Source: https://learn2.trade 
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.