Saturday, January 18, 2014

Trading with a single setup

Is it possible to trade with just one setup?

This question was asked by a reader who felt that patience is a word that he is not comfortable with.

Why Not?

Markets are random most of the time. Sometimes, the markets become inefficient which provides an edge to traders. We often stay away from the market because our rules and perception tell us there is no edge currently for us. At some point, the market will provide a clue to its direction. Then we take the trade. Still, we have no idea that the market will oblige us by moving in our preferred direction.

What we know is that probability is in our favor. This is the reason why traders make money. They wait patiently for the market to align itself according to their setup. Then, the trade is taken.

The nice part about the market is there is no single setup common to all traders. I like to trade contraction signals, while some other trader may have a setup that follows a moving average. Both will make money if trading is done with discipline. The discipline is key to profitability. Manage your position size, risk, adhere to the rules and you are in business.

Most novice traders cannot do that. While maintaining discipline sounds easy, commons sense thought, in reality it becomes extremely difficult to follow.

 

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