The words of market Wizard Stan Weinstein are so inspiring I must cite them verbatim :“Most people would not wait for the environment to tip itself off…Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey …it will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey does it attack. That, to me is the epitome…”.
I am not yet there myself to say the least, but since it is the way to go, lets see what it takes. After re-graduation from (the very good) Babypips School of pipsology, after all the years in the forums, seminars, classes, books and accounts blown, let’s take some internship and put everything together THE WAY OF CHEETAH.
Somebody said “knowledge is what remains after we’ve forgotten it all”. Before I forget every thing, I’ve learned that to succeed in trading I MUST:
[B]write my own plan,
follow that plan with rock solid discipline, and
document all my trades for further feedback.
[/B]
The plan imperatively contains 4 principal rules:
[B]Trade in the direction of the main trend
Cut my losses short
Let my winners grow
Manage risk.[/B]
We all know this, but as the Germans say, “probieren geht über studieren”. Only by putting the knowledge into practice do we finally get at it.
My objective here is to put all this together.
We cannot insist enough on the overwhelming role of the mind when trading. Colorful candle sticks, lines and indicators have a way of mesmerizing us away from taking care of the mental side of the business. But I know my psychology is my worst and most powerful enemy when trading. I deal with the “know yourself” rule by trying to journal every feeling around a trade and analyzing the outcomes afterwards.
The main difficulty was outlined decades ago by Jesse Livermore, he stated:" It was never my trading that made the big money for me. It was my sitting tight…Men who can both be right and sit tight are uncommon". This is a clear indication that letting profits run is the most difficult of the four rules of a good system.
Being patient when a trade goes our way, after having waited for all our conditions to be met before entering the trade is the way to go.
The first cardinal rule is to go with the trend. We determine what the trend is by plotting 2 exponential moving averages on the daily chart, one long term and one short term. The ones that work for me are 60 and 20 days. 20 is about a month of trading days and 60 is about three months.
When we know is which direction the trend is going, it is time to look for the trading area along that trend. This is when price retraces at least 38.2 % to a significant support or resistance level. Out of the obvious S/R lines drown on the higher time frames, a significant level of S/R can be the moving averages, the main trend line or a big round number.
At this level I plot an oscillator, my preferred being the RSI. I has 2 uses. One is the clearer visualization of the OS/OB situation of price levels, the second being the evaluation of divergences.
When we get confirmation that prices have retraced the most they can go. We watch the prices to form the intermediate swing low or high and enter after the first candle in the direction of the resuming trend, with a stop 10/20 pips beyond the swing high /low depending on volatility.
Here is an annotated chart for illustration. This is the trade I took at London open this Monday, after my week end studies. It is progressing very modestly so far but a good trade is different from a winning one. I will never try to hide my losers.
Only by taking all the good trades signaled legit by our system can we get to the treasures we hunt for.
