Now that you understand how we identify the true value zone, market momentum and how we enter a trade based on one of our entry reasons, it is time to set up the exits.
We will be using a hard stop loss with every trade. This means our stop loss will be determined and entered with the broker on every trade. Also, we will set a profit target for 1 of our 2 positions and use a trailing stop loss on our 2nd position.
Stop Loss (SL): It is very important to limit your risk. Place a hard stop loss on all trades. The risk on the position is called 1R. The SL will be set 1 ATR (same timeframe as the signal) below the nearest swing low of the signal bar on buy trades and above the nearest swing high of the signal bar on sell trades. Round down the ATR to the nearest 5. For example, if the ATR reads 38.2 pips then use 35 pips instead. For triangles and pennants, place the SL 5 pips above or below the opposite side.
Profit Target (T1): Set the profit target on position 1 at 1R, and no profit target on position 2. If 1R profit is reached move the stop loss on the remaining position to breakeven (BE). Once the target is hit on position 1 and the SL is changed to BE or better on the position 2, trail the stop above/below each swing high or low.
Trader’s Mindset:
You’ve analyzed the market, entered the trade and set up your exits. Your work is done no matter what the market tells you! Don’t listen to the voices trying to sabotage your hard work. Moving your stop is a mistake, closing out the trade early is a mistake, babysitting your trade is a mistake. More and better analysis is not the solution to your trading difficulties or lack of consistent results. Your attitude and state of mind WILL determine your results.
A trade is a trade is a trade, and only putting many of them together can you begin to see what is working and what isn’t. Executing each one correctly is your job.