same time, you should allow your winning trades
to grow as big as they can
before your price target is met. Trailing stops like ascending moving averages
and ascending trend lines are tools to help you maximize these gains.
Reaching a price target to a descending moving average, at a round price
number, or at an old price resistance is another great time to take profits off the
table and look for a better risk/reward ratio for your next entry. Remember, the
easiest path to profitability is to create asymmetry
in your trading so you have
big wins and small losses.
Another key to trading profitability will be the ability to hold a winning trade
and let it go as far as possible and not exit it until there’s a valid reason. Winning
trades should only be exited for a reason and not an emotion. You will need the
big wins to pay for all the small losses and cutting winners short will greatly hurt
your profitability. Do not get out of a trade until your signal tells you to, but
when it does, then get out!
How
to build your own signals
“I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop
is hit.” – Ed Seykota
Just like builders use hammers and saws to build houses, traders use technical
tools to build their own trading systems. You only
need a few of these tools to
begin to build your own signals, and in fact, you can have too many indicators
that lead to confusion. The most important thing to keep in mind is that there is
no one-size-fits-all solution. Some technical indicators work while markets are
range bound and others only work during trends.
Many are useless during high
volatility and crashes. No indicators work in all markets or under all conditions.
Trading profitability doesn’t come from a perfect indicator or a magic system, it
comes from creating an edge over other traders and trading that edge to have
more profits than losses over a long period of time. Your win rate will fluctuate
as market conditions shift between uptrends, downtrends,
range bound, and
volatility.