Keep it simple – Trading is not complicated

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Keep Your Day Trading Simple: Here’s How to Do It

It is logical advice, but is rarely explained

Andrew Brookes/Cultura/Getty Images

“Keep your (day) trading simple.” It’s logical advice, yet rarely does the one saying it explains how to keep it simple. With thousands of articles, indicators, strategies, and traders all saying something different, how do you reduce it all down to the bare minimum and keep it simple? Keeping your trading simple means following three steps, on every single trade. and only focusing on one step at a time.

3 Simple Steps

The Setup

To be an effective trader you need a trade setup. In a sea of ever-changing conditions, you need to filter out all the non-relevant information on your chart. A setup is a precise set of conditions which must materialize to indicate a trade could happen. Every trader’s setup(s) will be different; say for example you only trade breakouts from triangle patterns in the first two hours of the trading day, or in the first hour after lunch.

The triangle is your trade setup. When a triangle appears, it lets you know a trade could be imminent. Until the triangle appears though, you’re relaxed and focusing on nothing but finding triangle chart patterns.

By having a setup, you keep your trading simple. You aren’t concerned about whether the price falls, rallies, or what the news is saying. Until a triangle pattern appears (or whatever your specific trade setup is) you have nothing much to think about.

Until the setup occurs, you can’t advance to the trade trigger.

The Trade Trigger

The best trade setups let you know in advance (at least slightly) what your entry point will be. Once a triangle chart pattern appears you know that your entry will occur when the price breaks out of the triangle (if that’s your trade trigger). A trade trigger is an event that occurs following a trade setup that lets you know it’s time to enter a trade, NOW. If using an indicator, the trade trigger could be the exact moment the indicator passes through a particular level or crosses another indicator line.

Once step one has occurred, and you have valid trade setup, you no longer question whether you have a valid trade setup, this was already decided. Once you’ve identified a trade setup, your only task is to isolate where/when the trade trigger is.

Risk/Reward Assessment

A setup has occurred, and you defined exactly where/when you will enter the trade. During each stage there’s nothing else to think about–in the first stage you watch for setups, that is it; in the second stage, you define your entry point. With a setup in place, and a trade trigger pending, your next step is to determine if you take the trade or not.

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If the potential reward based on the setup (and your research and testing) outweighs the risk, execute the trade when the trade trigger occurs. If the potential reward doesn’t outweigh the risk, move back to step one and start looking for another setup.

Being aware of economic or company specific news events is part of the risk/reward assessment. Since we can’t know in advance how the market will react to an economic release, avoid taking (or being in) trades three minutes before or after a high impact economic/company-specific data release. Check an economic-calender before the trading day begins, so you know the data release times. Block off those times on your charts, so you know not to take trades, leaving you to focus on each stage as it comes.

Considerations and Final Word

At any given moment during the trading day, there’s only one thing you’re thinking about, and that one thing is dependent on which step you are on. All other information is irrelevant. First, only focus on finding your trade setup(s). Once you’ve found a trade setup, only focus on finding where the trade trigger is. Once you know the trade trigger, you can determine where your stop loss order and profit target will go. Based on the stop and target (and/or the win rate of the strategy) focus on whether you’ll take the trade when the trade trigger occurs. If the trade makes sense, execute the trade at the trade trigger. If the trade doesn’t make sense, move back to step one.

It is how you keep your trading simple in real-time. It requires that you’ve done your homework though. You need to have defined a trade setup, determined what a respectable risk/reward ratio is (and how you will establish your risk and reward) and it also means you have isolated a precise event which tells you when to get into trades.

Keep it simple – Trading is not complicated

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The “So Easy It’s Ridiculous” Trading System

As you can see, we have all the components of a good forex trading system.

First, we’ve decided that this is a swing trading system, and that we will trade on a daily chart.

Next, we use simple moving averages to help us identify a new trend as early as possible.

The RSI is an extra confirmation tool that helps us determine the strength of our trend.

After figuring out our trade setup, we then determined our risk for each trade. For this system, we are willing to risk 100 pips on each trade.

Usually, the higher the time frame, the more pips you should be willing to risk because your gains will typically be larger than if you were to trade on a smaller time frame.

Next, we clearly defined our entry and exit rules. At this point, we would begin the testing phase by starting with manual back tests.

Here’s an example of a long trade setup:

If we went back in time and looked at this chart, we would see that according to our system rules, this would be a good time to go long.

To backtest, you would write down at what price you would’ve entered, your stop loss, and your exit strategy.

Then you would move the chart one candle at a time to see how the trade unfolds.

In this particular case, you would’ve made some decent pips! You could’ve bought yourself something nice after this trade!

Of course, not all your trades will look this sexy. Some will look like ugly heifers, but you should always remember to stay disciplined and stick to your trading system rules.

Here’s an example of a short entry order for the “So Easy It’s Ridiculous” system.

We can see that our criteria is met, as there was a moving average crossover, the Stochastic was showing downward momentum and not yet in oversold territory, and RSI was less than 50.

At this point, we would enter short.

Now we would record our entry price, our stop loss and exit strategy, and then move the chart forward one candle at a time to see what happens.

Boo yeah baby! As it turns out, the trend was pretty strong and pair dropped almost 800 pips before another crossover was made!

Now isn’t that ridiculously easy?

In fact, there is an acronym that you will often see in the trading world called KISS.

It stands for Keep It Simple Stupid!

It basically means that forex trading systems don’t have to be complicated.

You don’t have to have a zillion indicators on your chart. In fact, keeping it simple will give you less of a headache.

The most important thing is discipline. We can’t stress it enough. Well, yes we can.

YOU MUST ALWAYS STICK TO YOUR TRADING SYSTEM RULES!

If you have tested your forex system thoroughly through back testing and by trading it live on a DEMO account for at least 2 months

Then you should feel confident enough to know that as long as you follow your rules, you will end up profitable in the long run.

Trust your system and trust yourself!

If you want to see some examples of some slightly more complicated forex trading systems, take a look at Huck’s HLHB system or Pip Surfer’s Cowabunga system.

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