#2: Your Most Important Trading Tool
Hey hey, what's up my friends!
Welcome back to this week's market analysis, it's great to have you.
So, in today's video, what I want to talk about is about being in control!
An example, last week I posted a call on Silver.
I said I was looking to go long!
And I believe some of you took the trading setup who lost money, and some of you who took the trading setup and made money.
Why is that?
The reason is that there are traders who made money that is in control.
They have a trading plan that they follow.
And chances are those who lost money don't have a trading plan!
How do they manage the trade if you don't have a trading plan?
Chances are is that when you see the market go against you, you get frightened.
You start to have thoughts like, “this trade is going to be a losing trade. I better exit my trade quickly before it goes further against me.”
So, you quickly bail on your trade.
Chances are this is what a trader with no trading plan will do!
This is what I mean by being in control!
If you are trading without a plan, you can't stay in control of yourself.
And when you are not in control, you are going to make very poor decisions in the market.
In today's video, I'm going to share with you step-by-step on how to actually develop your own trading plan.
So that you can stay in control of yourself while trading the markets.
Plus, I'm going to share with you this potential setup, on this market that is looking set to break up higher into its all-time highs.
Let’s get started…
How to analyze and manage your trade properly
The first I want to talk about is actually Silver.
Just a brief recap on why I went long on Silver:
As you can see in the weekly chart, it was in a long-term downtrend for over the last few years!
And in recent weeks, the bullish price action actually made me decide to have a long bias.
Why is that?
Because, if you look back historically, you have a series of lower highs:
Then we see a higher low and a higher high:
Once you see that standing there in the weekly chart, you know the long-term downtrend is starting to be weak or even might be in the neutral territory already.
Because you can easily conclude that this is pretty much in a range already.
It will range between these highs and these lows:
You can say that the long-term downtrend is starting to get weak!
And if there is an opportunity to go long, then it will be a fair setup.
Because you have a series of higher highs and higher lows.
Looking at the daily time frame:
This was where the opportunity came in!
You have an area of resistance, and the price was rejected three times.
And then price broke out of resistance, came back, and made a retest:
Previous resistance becomes support.
Now, here's the thing, I didn't go long just because price retested this previous resistance turned support.
Honestly, the support area can be pretty large:
The area of support can be anywhere.
I have no idea which part of the area price is going to reverse!
Could it be reversing near the top portion of the support area, or towards the low support area?
I have no idea!
So, what do I do?
I let price tell me!
And what it tells me is that price formed this bullish engulfing pattern over here:
Where you have a higher close telling you that the bulls are in control.
So, this was where I got long.
I shared with you last week as well, I said that you go long on the open, and the right stop loss below the low:
At this point in time, I believe there are traders who watched this video last week.
I think more than a thousand of you who would also take this similar setup.
There'll be some of you who lost money on this trade.
Some of you who broke-even on this trade.
And some of you who actually made money on this trade.
Why is that?
Let me explain...
Let's say you went long with me on Monday, stop loss below the low as seen in the recent example.
And the close on Monday was bullish.
And you tell us, “okay, I am not going to lose money on this trade. I don't want to let my winner become a loser.”
I'm sure you heard this mantra before, "Do not let your winner become a loser."
So, what do you do?
You set your trade to break even:
This is actually the fear of losing that costs you to do this.
You set your trade to break even and chances are the next day, you got stopped out at break even.
That's the first group of traders.
The second group of traders is this.
They didn't set their trade to break even, right?
But instead, what happens is that, at this point in time this candle over here:
It was actually looking very bearish!
So, again you give in to your fears!
Because you're thinking, “Oh my, it's looking so bearish chances are I'm going to be stopped out of my trade, if price trends toward this low over here."
“Why not let me quickly exit the trade, so the loss is still very small!”
So, you take a small loss...
Now, there's this third group of traders, and I hope you're one of this group of traders.
Where you tell yourself, “okay, I know what I'm trading, I'm following my trading plan. I went long, stop loss is at the low.”
“I know that potentially this is an area where sellers may come in. So, I'll be looking to exit my trade when price trades into the area of resistance, or swing high.”
This third group of traders will be in profits right now because they just followed their plan!
They tell themselves, sellers would be coming over here:
And this is an area if price trades lower.
So, they let their trade play out the way it is.
They didn't go and micromanage or gave in to their fears.
And this group of traders, chances are they would exit with a profit on this trade.
Can you see that how having a trading plan is so important?
Because, if you are micromanaging your trades pretty much all the time.
You're not going to give it the ample breathing room it needs, or to do what it needs to do.
So, a trading plan is really, really important!
And, later towards the end, I'll walk you through how we can actually go about developing your trading plan.
This is the market on Silver, and I want to share with you the importance of learning how to manage your trades.
I can see some traders made money, some lost money, and some of you just broke even.
Another market I want to share with you is actually this one over here, the BUND:
This is the weekly time frame, and it is really bullish.
If you look back historically, it has never traded at this high before.
The daily time frame it looks something like this:
There is the area of resistance and support.
For me, I am bullish on the BUND, needless to say.
If we can break, and close above the high on the Daily, I'll be looking to go long on the BUND.
Some of you may say, "Rayner are you crazy? You're going long, at such high prices. Why don't you wait?”
“Why don't you just wait for the price to come back lower, to retest the swing low, or the area of support? Wouldn't be that a much better trade?"
I agree that is a much more favorable price that I could get:
But the problem is, what if it doesn't retrace?
What if it doesn't come to the area of support that I'm waiting for?
I might potentially miss the big move higher if it does break out and trades for the next few thousand pips, and I miss the entire move.
Because I was just waiting for the price to retrace to these lows, or to this area of support.
Could I take it?
To be honest, I can't take it...
This is why I will pretty much rather just go long on the breakout!
If I'm wrong, I'll just exit the trade.
And, to be honest with you, I have no idea whether this is going to lead to a large move in the markets!
Because chances are one of two things is going to happen...
Number one, the price came into the area of resistance, and it breaks up nicely.
And I get a big winner in this trade.
Alternatively, the price comes into the area of resistance and does a false break out, and I take a loss on this trade.
That is probably one of the only two scenarios that could happen.
And I have no idea which scenario will happen.
I've absolutely no idea.
So, this is why I said there are different ways to trade the markets.
Another group of traders who like to trade reversals in the market, to take a swing out of it, they go short at the area of resistance and look to take profits at the lows or support as shown in the last example.
That is fine as well!
So, it's really about understanding what is your trading approach, and then sticking to it.
Don't be all over the place.
One moment you are trading breakouts, one moment you are trading counter-trend, and stuff like that.
I think honestly, your trading is going to be a mess if you have no idea what you are doing.
I just shared with you my plan on how I'm looking to trade this breakout.
And to see whether I can write a trend out of this trade.
If I can't, take the loss and move on.
I think this is pretty much what I've been repeating over the last 40 to 50 videos?
This is the setup that I'm looking at into this coming week.
And before I end…
I just want to walk you through about how you can go about developing your trading plan.
I think this is such an important aspect of trading that most traders neglect!
Most traders, they like to drop me a message saying, " Hey Rayner, I'm long this trade right now. Should I exit my trade, or should I hold it longer?”
“Right now, I'm in a loss, if I cut my trades, what if it goes back in my favor, and I exited in a very lousy price? “
The problem with this is that you're not trading you’re gambling.
Because you are basically making decisions based on the results that the market is giving you right now!
You're making decisions based on your fears.
Your emotions and stuff like that.
And in the long run, there's no way you can make money by trading based on your emotions!
What you need to do is to have a trading plan, and I say this a lot of times...
Have a trading plan and follow it!
It doesn't matter whether your trading plan makes money, or lose money.
Because from there you have something objective that you can work with, improve on it, tweak it into something that is profitable in the long-term.
How to make a trading plan
Let me walk you through how to actually go about developing your trading plan…
You need to know what is the timeframe you're trading.
Either your trading the daily, or the hourly timeframe, the 4-hour, and stuff like that.
You need to define the timeframe you're trading.
If you have a full-time job, it doesn't make sense to be trading off the 15-minute timeframe.
That is pretty much a financial suicide.
Stick to the 4-hour or the daily timeframe.
That would make more sense if you have a full-time job.
What markets are you trading?
The currency markets, the futures markets, the bond markets, the indices, stocks, blah, blah, blah, whatever!
You need to define the scope of the markets you're looking!
For me, I'm a trend follower.
I trade across both the Forex and futures market!
You need to know what other markets you are trading.
Maybe, you don't trade so many markets as me.
You just focus on a major currency pairs like EUR/USD, AUD/USD, USD/JPY, and stuff like that.
Know what are the markets you are trading, or if you're trading stocks, which sector of the stocks you are trading.
Which particular stocks it is, is it mid-caps, the blue chips and stuff like that.
How much are you going to risk on each trade?
For me, I keep saying many times over, I risk 1% on each trade.
This is really dependent on your own tolerance.
Some traders risk 2%, some 0.5%.
Again, you're not me, I'm not you, right?
It is pretty much something really personal.
Trading set-up condition
This means that you need to know what you're looking for in your trading setup.
Are you waiting for prices to come into this area of support?
And then maybe you look for candlestick reversal pattern before you get long?
Or, maybe you're just like me.
Looking to trade a breakout if price closes higher, you look to get long.
Let's say if another condition is that if you want to go long...
Price has to be above the 200-day moving average, and stuff like that.
You need to know what is the precise condition to get long or to go short in your trading.
How will you enter?
Are you going to enter the market order, a limit order?
Are you going to wait for a candlestick confirmation?
How are you going to enter markets?
You need to know where to put your stop loss.
You are definitely going to be wrong, many times in your trading career.
And, you want to limit the damage, should you be wrong.
So, where are you going to put your stop loss?
Your stop loss will get you out of your trade when the market turn against you.
You can call it a profit target or trailing stop loss.
Where are you going to exit your trade if you're right?
If you're a trend follower, you look to trail your stop loss.
Or could it be based on the structure of the markets?
Could it be based on moving averages?
If you're a swing trader, you'll be looking to take a swing in the market.
I've covered quite a bit in this week's market analysis.
I think this is somewhat of analysis, or somewhat of a lesson along the way.
But, I hope this really gives you a foundation to work with, in your trading.
I can see this is very often why most traders fail because they're trading without a plan.
They're just trading based on rumors, tips, social media, the traders that I'm going to follow as well, based on his track record, blah blah blah!
What happens after, is that your account just depletes day after day.
And you have no idea what went wrong.
You have no idea how to improve.
You have no idea whether trading is for you.
I'm sure you have thoughts like this.
So, get a trading plan, I've just shared with you step by step on what you're trading plan should look like.
I've come to the end of this week's market analysis.
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And if you have any questions, any comments, let me know in the comment section below.
With that, I wish you good luck and good trading.
I'll talk to you soon.