The Trader's Main Tools
I trade between whole numbers
I trade between whole numbers because generally corrections that occur between the whole numbers are smaller and more manageable than corrections that occur close to non-whole numbers. The experienced traders are generally taking profit at whole numbers, selling into volume, while the inexperienced are purchasing into an ending trend, thus being caught in and carved up in a correctional profit taking trap.
It's better to trade after a whole number once the correction is completed, rather than before a whole number when the correction is about to begin. For example I don't buy at $1.80 - $1.90 as the price approaches $2.00. (see chart) Being a whole number, I went long, after the correction finished and the market proved itself to me by also moving into new highs on volume, confirming that the market was actually moving higher (the entry signal price bar would be above the $2.00 plus mark), then trading to the next whole number, to exit at $3.00. With more experience and Elliot Wave analysis you will learn to see market re-balancing and support points as the market moves through time and price. You will learn to see the 10 patterns corrections fall into, giving you an understanding of their beginning, middle and end. In the mean time until you have developed a recognition and understanding of larger corrections that occur close to whole numbers, it's best to avoid them.
Use some rules to stay cool
I need to manage myself emotionally and my position logically. A winning or losing journey can cause high anxiety. If you've developed enough intuitional, emotional trading intelligence, that's alright. If not you will require to develop a little organizational logic or run for cover!
Trade management for me is a set of logical rules I've developed to suit my trading personality. It delivers signals without any emotional decision, from entry to exit. Being in a trade that has a set of trading rules to cover the many possible mishaps that occur along the way is very comforting. It keeps my mind clear and centered on what I need to do at every point of my position. If you don't have a set of trading rules to supervise the trade or if you break or change the rules whilst in the trade it means you have become emotional, and loss will surely find you.
A trade direction system also offers the structure upon which to modify and hone your learned trading insights to improve and build your trading results. You can refine your signals as you learn to discriminate more details within a trade. It can also contain organizational aspects such as preparing your mind with some focusing exercise (like meditation), clearing your workspace, having buy/sell dialogue boxes checked and ready to go, peace and quiet - or loud music if that suits you! All your software needs to be checked and ready to use. There is nothing worse than having technical glitches when you have your currency in the market and its moving fast!
A mechanical method is a good place to start learning some of the basic trading rules you will want to make your own. The mechanical method I use as 'trade management' is a Japanese concept called Renko, which is now becoming common in basic charting programs. Visually it has simple black and white boxes making it easy to understand. Using Renko on daily default setting is fine - the box size is calculated much like the Average True Range (ATR) taking into consideration the daily range. The clear change in box from white to black is the trade management exit signal. Because Renko takes the price and range into its calculation it is essentially taking the personality of the trend into consideration. Renko doesn't take time into the equation.
Renko gives the market room to move, that is, it allows the market to run, accommodating any reasonable swings but protects profits. It's not a perfect concept but it does take a balanced stand on most of the necessary aspects that normally elude us in riding a trend to the max. It handles the usual error of placing stops too close or taking gain too early for no just.
by: Peter Mathers
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