Entries vs Exits
In trading terms its a question about Entries but not the Exits. A Novice trader often ignores planning their EXITS ahead of their entries. I’ve learned to understand that it has something to do with their perception of “A perfect entry”. They believe that a perfect entry method automatically means a 100% profitable trade. Its to do with their definition of a “Perfect Entry”. They define an entry as Perfect ONLY when it is Profitable. And that is where the problem exists.
Hence they give the accuracy of entries a huge priority. They just focus on Timing their entries. Because under their belief system, as long as the entry is “perfect” you’ll be getting richer and richer trade after trade. hey think that in order to extract substantial profits out of the market, they need to time their entries “perfectly”.
Lack of Probabilistic Mindset
The next logical step would be to identify a “complex” mechanism to ensure this goal is achieved. Surely, the professionals know techniques that are alien to most of us. Surely, they are people with exceptional brain power and wisdom. But this can not be further from the truth.
The fact remains that
Professional Traders i.e consistently successful traders, have perfect developed perfect ability to remain “disciplined”, well, may be not “perfect” but lets say “highly discipline” approach to follow a “simple” trading plan that gives them an edge.
Random Entries vs Methodical Entries:
Entries are not that important. I’d say they take up 5% of the equation of Successful ie. Consistently profitable trading. Entries can be taken randomly, (just to make a point) of course with better timing we can improve our over all profitability but entries really isn’t important.
So what is it that we should focus on? We should focus on Managing trades correctly once we have entered. And the only way to manage your trades correctly is to have your exits planned ahead of entries. You should know exactly WHY you’re taking this trade before you make your entry into the market.
You should have an aim, a profit objective, a method that is in line with the rules of the method taht provides that statistical edge. e.g. the method I use for breakout trades requires that I take “low risk” entries and look for at least 5X (five multiples) of profit based on the initial risk taken.
So, if I take a trade, I have a fair idea what are the price levels that market must achieve to hit that target. If the market structure, (via technical/visual analysis) suggests that the “probability” of that happening is low, then no matter how good the “entry Signal” is, I will “filter” that “trade signal” and look for something that has a higher probability of achieving at least 5R profits. A Great rule we learned from Paul Tudor Jones via Tony Robbins new Book. Thank you TR.
Asymmetric Risk Rewards
[Note: 1R is one unit of Risk, e.g. if the initial stop loss requirement of a signal was 10 pips then 10pips = 1R, in this situation I’d be looking for 5 times of the initial risk in pips i.e. price should have the probability of moving at least 50 pips in my favour. Thank you to Van Tharp for teaching me this]
AIMS strategies focuses primarily on a traders ability to learn to trade with discipline. For it is a traders ability to follow a trading plan, her ability to create a trading plan, incorporate a trading strategy with an edge into the trading plan and then be able to follow it at least 80% of the time. When a new member joins AIMS we help them to work on their trading plan and incorporate a T20 Principle. Something we learned from the late Mark Douglas who wrote this amazing book Trading in The Zone. {RIP Mr. Douglas}
The Perfect Trading System
Is there a strategy that gives that edge everyone is after? Where is the Holy Grail System?
There are many strategies out there that can give you an edge. Simple trade-able strategies but the problem isn’t that you cannot find one. The fact that you’re reading this you’ve already found a place where you can get a proven strategy that gives you a 66% edge. But how can you use this strategy to your advantage? The only logical way would be to follow it 100% of the time. The surprising fact, to some, is that 95% of people cannot follow a strategy because they are NOT disciplined.
How Important is it to be Disciplined?
So, we highly stress on discipline. We have it divided into three stages. In the first stage, in the beginning, a trader needs to to work on only one thing, and that is discipline. Traders often focus on “making money” and “making pips”. Nothing wrong with that except the fact that trading profits are made by traders who can trade correctly.
Successful trading requires that a trader be able to maintain at least 80% discipline. That can be achieved by following our T20 Principle (Available inside AIMS Forum). T20 means you don’t focus on the outcome on a single trader rather you take a batch of 20 trades and you mark each trade with a score of 1 or 0. If you’ve followed your rules you mark it as 1 if you break any one rule its a 0. Simple.
The Biggest factor that would violate a DS [Discipline Score] is not the fact that you missed a rule while “creating” an entry setup, but rather our ability to follow the Trade Management and Risk Management Rules. It is our highest priority to NEVER violate our Risk Management Rules.
A trader must not have much discretion when it comes to entries but there can be discretion in terms of exiting however our only discretion at the beginning is to “allow” ourselves to Allow the trade to progress and exit according to a Set Trade Management plan.
Profitable trading then becomes a “byproduct” of trading “correctly”. This process then eliminates the need and struggle of trying to be make money. It becomes a Stress Free Activity of simply looking for your edge and trading correctly.
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