Baseline Analytics TrendFlex is a trend-following system filtered by high-probability trend-change signals. Learn more about our methodology and subscribe to our market-beating signals.
Trading is a business. Track your results, review and learn from them, modify your strategy if you need to improve those results, and book profits. Your first goal is capital preservation. Your second goal is to take on risk when the odds are significantly in your favor. Below are suggestions from lessons learned from technical analysis and money management.
Seven Steadfast Rules
Routinely take profits. It has never been discouraging to take a profit. Often, it is satisfying to take a loss in order to close out a position. Don't let a profit turn into a loss. Short-term trades may yield returns much higher than long-term holds which revert to average market returns.
Beware of Complacency. Just when all is going very well, when your equity curve is at its peak, the following will happen: a market correction, heavier than normal credit card bills to pay, a new roof needed on the house. Be flexible and adaptable to changing market conditions. Don't fear leaving money on the table.
Trade during strong trends and let your profits run. Strong trends occur only 30% of the time. This suggests that the majority of the time is spent churning through various mediocre and unprofitable trades. Is it worth it? Buy and hold strategy excels within intermediate-term strong trends.
Technical tools should be considered in the context of the prevailing trend. Don't over-emphasizing technical signals: look for price behavior to confirm your technical observations. Prefer to catch the trend after it has started rather than anticipating too early and getting stopped out or missing a rally. Don't get entranced with too many sophisticated technical signals: keep it simple.
Buy, sell and set stops at technical support and resistance levels. This practice will help you to establish entry points at a more favorable reward/risk price, will keep you from tolerating a standard stop loss % or $ amount, and will permit a narrower stop loss.
Stick with a system, track your results and learn from them. Trading is business, not entertainment.
Continuously seek opportunities, but don't over-trade. There are always stocks and sectors in their own Bull Markets and Bear Markets. Trade both. Short sectors rather than indices. Long winning stocks in clear uptrends. Find the opportunities and stick with the rules.