Set-up conditions, Entry Rules (trigger into the trade) ,Initial stop loss rules, Exit Rules
Method refers to how you find your trades, how you decide what to buy and sell.You need reasons for making your decisions. You spell out those reasons.Obtaining a method comes down to one thing, creating parmetres for making decisions for entering and exiting markets.Without finding out a robust and sound method a forex trader cannot make money consitently from the markets for living.
What are the attributs of a good forex trading Method?
A good trading method should be as simple as possible to provide a powerful edge to the diciplined trader that is based upon specefic set-up conditions, entry rules, initial stops and exit strategy.In addition mangement of trade position, and the number of positions, all must be done according to strict money management rules.A good trading method must be relatively easy to follow.
Set up conditions. These are the specefic requirements that must be met to consider a currency pair for a trade.These requirements are expressed in terms of technical anylysis, indicators, patterns, and price action.The aim here is to only consider a trade when the market meets these pre-set conditions and to stand aside otherwise.
Entry Rules.Once the set-up conditions are in place, entry rules define the trigger necessary to actually enter into the trade.This usually means that price must behave in a certain way in order to trigger into a trade using a market order or entry order.
Initial stop rules.These are the rules that govern how a new position should be protected from an adverse move in the market.Since there is always risk when trading the forx markets, it is very important to know the approximate place, to place the initial stop order. Placed too close to the market, risks being stopped out prematurely.Placed too far from the market takes on too much risks.This is one of the most critical aspect of trade management.Effective Initial Stops should be placed where you dont expect the market to go and if it does, the premise of the trade is over and you should exit the trade with a small loss.
Exit strategy rules.These rules govern how to manage a trade to exit the trade profitably, if the initial stop rules have not been applied to the trade.Then rules should stike a balance between protecting open profits as much as possible and exiting a market and exiting a market too soon and miss favourable market moves.
As you become a more experienced trader you will see some of the same concepts covered again and again in various trading methods.If you learn just one new technique or if you see a familiar concept rephrased in a way that creates new clarity for you, and which works for you, then your time and effort in that method should have been well spent and worth it.
The two basic concepts that can be used for developing a trading method is trend trading concept and break-out concept and variations or combinations of these concepts.