The 4 Steps Behind My Trading Strategy (Bias to Entry)

Summary

In this video, the speaker outlines a structured, four-step trading process designed to minimize unnecessary losses and enhance profitability. The steps include setting a market framework using the daily chart, confirming the bias with intraday price action, executing trades based on entry signals, and managing trades effectively to maximize gains. Key strategies include focusing on relevant swings, using daily profiles for confirmation, and avoiding micromanagement of trades. With dynamic risk-to-reward management, this system offers a repeatable, adaptable approach for consistent trading success.

Takeaways

• 😀 Framework: Use the daily time frame to set a market bias. Avoid using higher time frames like weekly or monthly for short-term trading.
• 😀 Confirmation: Wait for confirmation within the trading day using daily profiles. This is where the idea transforms into actionable execution.
• 😀 Entry: Look for an entry only when the market confirms the direction, supported by relevant daily profile patterns.
• 😀 Trade Management: Avoid micromanaging trades. Set clear risk-to-reward thresholds and only adjust once the trade moves in your favor.
• 😀 Relevant Swings: Identify key high and low points on the daily chart to gauge significant price movements and reactions.
• 😀 Shallow Opposing Runs: A small opposing wick on the daily candle indicates potential for expansion, which you should use to validate your trade direction.
• 😀 Risk-to-Reward: Set a baseline target of 2R (risk-to-reward ratio). You can scale out, but ensure you allow the trade room to run if it's working in your favor.
• 😀 Avoid Premature Exit: Don’t exit prematurely or micromanage trades. Stick to your framework and let the market prove your trade's direction.
• 😀 Scaling Out: As the trade hits your risk-to-reward targets (2R), begin scaling out, but continue to allow some position to run if the market shows further opportunity.
• 😀 Consistency Through Repetition: The more you practice this method, the more you'll see consistent patterns in both backtesting and live trading, which leads to improved execution.

Q & A

What is the importance of using a higher time frame like the daily chart for setting a framework in trading?

The daily chart is crucial for short-term trading because it provides a balanced view of the market's movement. It allows traders to capture intraday opportunities without getting distracted by unnecessary details from higher time frames (weekly or monthly), which are more suitable for long-term trends.

Why should a trader avoid using time frames lower than the daily chart?

Lower time frames can offer too much detail and noise, which can obscure the bigger picture. By staying on the daily chart, traders can focus on the broader market movement, helping them make better decisions without being misled by erratic short-term price changes.

How does 'confirmation' in the trading process differ from the initial 'framework'?

The 'framework' sets the initial market bias based on the daily chart, but 'confirmation' ensures that the market is aligning with that idea. Confirmation typically comes from daily profiles or price action that validates the expected direction before executing the trade.

What role do 'relevant swings' play in setting up a trade?

Relevant swings refer to significant highs and lows in the market, which can serve as key points for price reactions. These swings are important because they help traders identify areas where the market might reverse or continue, providing entry or exit signals for trades.

Why is 'entry' considered the third step in the trading process?

Entry comes after confirmation of the market direction. Once the framework and confirmation align, an entry point is identified. This ensures that the trade is backed by a clear reason for the market to move in the expected direction, improving the chances of success.

What is the significance of 'shallow opposing runs' in daily candle analysis?

A shallow opposing run on a daily candle suggests a market correction that could lead to a continuation move. Traders watch for this pattern as it indicates that the market is likely to reverse direction, supporting the setup for further price expansion.

What are 'failure swings,' and how do they affect trade decisions?

Failure swings occur when price fails to break through a key level (like a high or low). These swings signal that the market might reverse or continue in the opposite direction. Traders use failure swings as targets for entries and exits, identifying zones where the market may struggle to break and thus offering trade opportunities.

How does the concept of 'managing' a trade impact a trader's performance?

Proper trade management involves setting clear risk-to-reward thresholds and avoiding micromanaging trades. It ensures that traders let their positions develop without overreacting to short-term fluctuations, helping them maintain discipline and maximize profits while minimizing losses.

Why is it important for traders to avoid 'micromanaging' their trades?

Micromanaging trades can lead to premature exits or emotional decisions that might negatively affect the trade’s outcome. By sticking to a planned risk-to-reward strategy and only adjusting trades when necessary, traders can allow their positions to play out more effectively.

What is the role of the 'London reversal daily profile' in confirming a trade setup?

The London reversal daily profile is a key pattern where price moves from a low, then reverses, which sets up the New York session for a continuation. This pattern serves as confirmation that the market is likely to move in the intended direction, helping traders validate their setup before entering a trade.