When formal education began, the three Rs were the focus. Reading, (w is silent) Riting, (a is silent) Ritmetic were and still are the fundamentals of learning.
What are the three Rs of trading?
*Rules of the trade
There are many more Rs that are brought to mind, but these central ones can make you or break you in the world of trading.
First of all, look at the rules. Jumping into a trade without knowing why you are there or what to do next spells disaster to your account. Learning and writing down the rules so you cannot make it up as you go along ais vital.
Rules should incorporate
1.Identification – What technical signs are you looking for? If you trade with moving averages, then you are most likely looking for a moving average cross. If you are using Fibonacci support and resistance, you are looking for a bounce off a Fibonacci line. What are your entry rules?
2.Entry – The better you become at selecting the best entry, the less risk you have before your stop is triggered. NEVER, EVER enter a trade without a stop and target in place. Risk to Reward will help you with this.
3.Management – If you are only trading one share or one contract, then management is fairly simple. You will exit the trade at your target or your stop loss. If you are trading multiple shares or contracts, then a scaling out method will help you get the most success from your trade. As an example, you might get out of 70% of your trade when the first target is reached. Then you would adjust your stop and go to the next target before exiting the next 20% of your trade. A Trailing stop would be useful to exit the last 10% when the stock stops moving.
4.Exit – It seems that management of the trade determines the exits. Actually good charting skills determine your exit points before you ever enter the trade. When you find a good candidate at a good point on the chart according to the technical indicators you use, take the time to find the targets both above the current market value and below the current market value. These become your targets.
The truth is that 80+% of the stocks follow the direction of the S&P and you do not know what news will send the market in one way or another. You will be ready with your targets no matter the direction of movement.
Investors rely heavily on Fundamental Analysis where Traders rely heavily on Technical Analysis. You can certainly get a comprehensive education on Technical Analysis in WealthBuildersHQ’s program called Trading U. Check it out and get really good at the Three Rs of Trading.