Hi srganesh,
Welcome to T2W!
I'm not a pro' by any stretch of the imagination but some feedback is better than none!
1. Most traders will argue that it's not possible to predict accurately and consistently what price will do next. Instead, they work on probabilities based on what price has done historically.
2. You have to answer this for yourself based on your own research. You'll need a set up and to test it thoroughly in different market conditions (see 'Journal Objectives', below).
3. The obvious answer here is to filter your selection of instruments based on lower ATR values to get around this problem. Alternatively, you could work out a more aggressive entry that allows you to keep your stop size within acceptable limits.
4. As per 2. above, there's not much point in someone else answering this for you. It'll pay you dividends many times over to look at old S&R and reach your own conclusions which may well be different from mine or the next person's.
There was no chart btw, it would be helpful to post one to show what you're attempting to do. In the meantime - the following might be useful . . .
JOURNAL OBJECTIVES
It’s very helpful, essential even, to spell out in black and white in the first few posts exactly what it is that you hope to achieve by starting your journal. This will provide focus for you as well as everyone subscribed to it. Trading is a bit like going on a long car journey. Just as you wouldn’t set off in your car without knowing your destination and a good idea of how to get there (or have a map or SatNav to guide you), to trade successfully requires you to know what it is you’re trying to achieve and how you expect to achieve it. To help bring this into focus, these are the specific issues that would, ideally, be addressed early on in your journal . . .
• Objectives
What do you want to achieve? Is trading to be a hobby, a part time income, a foundation for a career as a prop’ trader or your full time job?
• Markets & Instruments
Which market(s) will your trading – and your journal – focus on? If you trade stocks, which exchanges will you trade and how many stocks will you track? If you trade forex, how many currency pairs will you track etc.?
• Style
Are you a scalper, in and out of the market in minutes? Or do you prefer a more relaxed approach? Broadly speaking, are you a day trader, swing trader or position trader?
• Timeframes
Which timeframe(s) will you use? Do not be limited by convention. If you’re a swing trader, there’s nothing to say that you have to use daily and weekly charts alone. Have you considered using one minute charts to get a scalper’s entry with a tight stop that you can then run into a swing trade?
• RBR
Essentially, most trading strategies fall into one of three generic types: Reversals, Breakouts and Retracements. There are pro’s and con’s to all three; do you understand what they are and why you’re better suited to trading one rather than another?
• Trade Set Up
Have you got a set up? A set up is a clearly defined set of variables that come together and indicate that a trade may be on the cards. This needs to be simple; very simple if you’re a day trader, as you have to recognise it in real time and act quickly. ‘I’ll enter long at a continuation pattern within an established uptrend’ is not a set up. It’s too vague. It’s like saying ‘I want to travel north’ using the car analogy from earlier on. It needs to be precise, a lot more precise.
• Testing
Once you’ve established a simple and clearly defined set up, you need to test it to see what the probability of a successful outcome is. It’s impossible to do that if you haven’t defined your trade set up precisely enough to begin with. Trading without knowing the probability of success isn’t trading at all. It’s gambling. The trader that attempts to test ‘a continuation pattern within an established uptrend’ first needs to define what trend is and then the exact characteristics of the continuation pattern. Hand drawn trend lines are likely to produce different results from computer generated ones (e.g. moving averages). Continuation patterns come in all shapes and sizes: rectangles, triangles, pennants and flags – to name but a few. All of these too - are likely to produce different results from the other. And that’s just using two variables. The more variables you add, e.g. different candlestick patterns and indicators, the more complex and time consuming the testing becomes.
• Entry, Stop Loss & Targets
It’s a common mistake for new traders and aspiring journalists to start at this point, not realising the necessity for any of the above, or thinking they can take a short cut around it. If you don’t set out the ground rules by doing the necessary preliminary work, your journal is likely to meander aimlessly from pillar to post and get nowhere. You won’t be able to distinguish what you’re doing right from what you’re doing wrong and you won’t know what advice to accept and what to ignore. In consequence, your journal will, in all probability, just fizzle out without reaching any useful conclusions. Worse still, you will be left feeling even more frustrated and confused than you were before starting it. Don’t let this happen to you!
Tim.
