A Trading Scenario
Everyone has a different method and sequence to their trading but most follow a similar pattern to the following. If you are missing any of the steps it may affect the quality of your work.
We recommend to our students that they draw up a brief checklist to ensure they are following a well constructed and logical progression. This gives them more confidence in their trading until it becomes second nature.
A typical trading scenario would look like this one
1. Daily analysis
Before you start thinking about opening a trade, the first thing you should do is an analysis, a long term analysis that will help you identify the longer term trend, important support and resistance levels and reversal patterns. This analysis should be made on the daily or weekly charts. We need to remember that the longer the time frame the more significant the findings are. For instance, a resistance in a daily chart has far more weight than a support in the 5min chart. Also, reversal patterns on the daily chart are more significant than reversal patterns on the 30 min chart or the hourly chart.
2. Find low-risk trading opportunities (system)
By this point should have already devised your trading system, you found that whenever certain things happen, the market has a higher probability to go one way over the other. This is what we call profiting from low-risk trading opportunities.
3. Set-up stalking
Monitor the currency pairs you are to trade and look for the set-up that has to be present before you think to take a trade. The set-up has to be present, is part of our system, so we need to stalk the market and when your set-up is present get ready to trade. Only when your signal triggers and your set-up is present do we have a low-risk trading opportunity.
4. Trigger signal
Look for your trading signal. It has to be an objective way to enter the market, there must be no doubt about it, either it is present or not. If you have a discretionary system, make your rules as objective as possible. At this step you should also place your stop loss and take profit levels.
5. Monitor your trade
Monitor your trade, have in mind all your exit scenarios (i.e. news announcements or a signal against our trade). The nature of monitoring depends upon your time frame for keeping transactions. A daytrader for instance must monitor his trade from beginning to end. A position trader on the other hand should monitor his positions just a couple times a day.
6. Input information into your journal
Write down all possible information about your trade. Record any thoughts about your trade, how is it developing, why did you exit your trade?
7. Trading review
It is not enough to have a trading journal; you need to review it constantly. A daytrader must review his trading journal once a day (I recommend reviewing it at the beginning of the following session rather than at the end of the session of the day). Try to make a mental picture of all trades. A position trader should review it at least once per week.