The 4 Step Trading Strategy
These are the four simple steps you can follow to achieve a successful trade: identify the environment, find a good entry, have an exit strategy, and be patient!
- Identify the environment
The first step is to determine whether the environment is bullish or bearish. This is essential to help you pick the right direction for a favorable trade. For example, if the environment is bullish, a long position will perform better than a short. If the environment is bearish, a short position is will perform better than a long.
I usually use a higher time frame than the one I am trading on to determine the environment. For example, if I am trading on the 1 hour chart, I check the 4 hour.
- The EMA 100 & EMA 200 can help you identify market trends on the 4 hour & daily charts. For example, when the EMA 100 crosses the EMA 200, this means there is a change in the trend. If the EMA 100 crosses to the upside, this indicates a bullish trend. If the EMA 100 crosses to the downside, this indicates a bearish trend.
- For shorter time frames such as 1 hour, you can use the EMA 25 & SMA 50. When the EMA 100 crosses to the upside, this indicates a bullish trend. When the EMA 25 crosses to the downside, this indicates a bearish trend.
2. Find a good entry
Finding a good entry is crucial to having a good trade. The better your entry, the more room for profit you have.
- I find my entries based on divergences
- To find divergences, I use Market Cipher’s Market Momentum Wave or MACD.
3. Have an exit strategy
Having an exit plan is a very important component of your trading strategy. Knowing when to pull the trigger is probably one of the hardest things to determine as a trader.
Markets can get to you, and instead of making rational decisions, you end up making emotional ones. This is why having a plan beforehand and sticking to it is highly recommended. Don’t let a good trade turn into a bad one because you did not know when to take profits.
- I determine when to take profit based on support and resistance levels (support & resistance scalping strategy). Once the price has hit certain levels, I know the market is bound to switch directions.
- You can also use Fibonacci Retracement levels
4. Be patient & trust your indicators
Patience is a virtue! And when it comes to trading is one of the most important skills to have. Half of the job is waiting. Waiting, waiting waiting… Waiting for the right entry, waiting for your trade to play out, waiting to pick a good exit.
- Once you have done your analysis and placed your bets, just wait. Measure the time you think it will take your trade to play out and wait.
- Trust your indicators, trust your knowledge and trust yourself.
- Have a good risk management strategy
- Have a trading journal
If you follow these steps alongside a good risk management strategy and journaling, you can be very successful!
Remember, trading is about patience, confidence, and risk management.
Also, remember to have fun & test out different strategies until you develop your own style.
I hope this information was useful :)
Love & light,