One of the most important things that you can learn to become a successful trader is how to go about selecting “your” trades, very objectively and without being carried away by emotions and opinions.
As a professional trader taking risks, you are in the same business as some of the largest companies in the world, those in the business of INSURANCE. The world’s largest and the most profitable insurance companies have very well defined systems and processes to select risk. They are very selective about assuming risk.
There are only three things to consider when you are preparing to assume risk in your trading insurance company: TRADE SELECTION, TRADE SELECTION, and TRADE SELECTION. Trade clear cut, well defined chart formations. Trade only with the trend. Have a filtering system to trade only the most reliable setups. Be flexible to adapt to the ever changing market dynamics.
So how do we select trades? We have designed a tool to select trades on our chosen basket of commodities using the following variables
Longer Term (Weekly/ Daily) :
The daily trend on US indices - Dow and Nasdaq
The weekly trend of the commodity
The daily trend of the commodity
The daily trend of sister commodities, applicable to metals
Shorter Term (2H):
Setup quality as determined by the Win Ratio
Chart Pattern on the 2H candlestick chart
Support and Resistance
Setup quality/ strength of sister commodities, applicable to metals
Each of the above variables is determined to come to a decision on whether to trade the setup or let it pass. This is part of the Trade Preparation that happens in the 4PM to 5PM window in advance of the trade execution @ 5PM. A similar exercise needs to happen before trade execution @ 7PM.
In the following posts, we would talk about each of these variables and how to determine them. In the end, we would present to you the TRADE SELECTION TOOL, where we feed the variables as determined. The table then calculates a score for the trade - a minium score is required to take the trade. This ensures that the method of Trade Selection is objective and logical.
Please click on "Next Post" to know how to determine the Longer Term Trend across commodities and indices - Trade Selection - Longer Term Trend.
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