Trading Rules And Conditions Apply http://www.netpicks.com/trading-rules-and-conditions-apply/

Having a set of trading rules and conditions that you look for when

searching out trading opportunities is really one of the keys to success.

It doesn't matter if you use a 80-90% mechanical system like Counterpunch

or DST from Netpicks that plots out the opportunity or you use a

discretionary method based on sound market truths.

Without rules or demanding certain market conditions exist, you are most likely just guessing and that is no way

to expect a long and successful trading career.

With the mechanical systems, the trading rules and conditions are built

into the system and once an opportunity sets up according to the

system rules, all the relevant information (entry, stops, and targets)

is printed on the chart.

For many people, this is probably a great route to go in their trading

career.

http://www.netpicks.com/trading-systems/

Executed properly, you do have a slightly easier time bypassing many of

the biases traders face during their trading career. The key to mechanical

trading is sticking to the trade plan perfectly.

Discretionary is different but contrary to the name, there are still rules

involved. Success in trading discretionary means not wishing and hoping the setup is a trade or seeing

things that are not there.

It involves conditions that must be present and close is close enough is

often times an overriding rule.

I am currently short the USDCAD Forex pair and I think breaking down the

trade will highlight discretion, simple concepts, and truths about the market

that we often hear.

The USDCAD has been moving up for quite a while and this chart shows how

the pauses in the uptrend resolved.

"A" is a beautiful test of the lows of the range solidly rejected and price broke with momentum "B" has lower momentum into this range but strong break to the upside

A range formation takes place with a brief test to the upside that was

rejected.

The weekly chart superimposed at the bottom shows the break of the

support zone.

Once the support zone broke with momentum, I was only alert for a pause and then another leg down.

The key for this trade was: Momentum on the break

After the break I got the pause I was looking for. These was a bullish green candle that failed to take the currency

pair much higher. Once the momentum showed up to the

downside, I placed a sell stop order to get in when the market broke lower.

The downward triangle shows the trade trigger and the same day the

trade started to take heat. The next day the trade was well under way.

I am well aware that the overall trend of this pair on my time frames is to the upside. That simply means that I will not let a rally go too far before exiting

on the trade.

The reason for the counter-trend trade is simple: The price action and

structure gave me a valid reason to take a short trade.

The trade dropped 175 pips from entry and is finding itself held up at the area

marked "A" in the first chart.

There were conditions that I needed to take place for this particular trade:

Steady directional trend Higher momentum thrust into "B" than previous moves Range formation Break of support zone Some type of flag formation

Some may classify those as "rules" but for me they were conditions of the

market that had to take place in order to be interested in a trade to the

downside.

The rules encompass the entry, protective stop, and management

For the entry, I needed a strong break of the pattern to the downside which occurred. This allowed me to stop my way into the trade which would mean price was heading in my direction at

the time of entry. The stop was placed above the range just outside the range

of failure tests.

Management would be scale at 1R and watch for declining interest in the

downward move. This can take many forms but the key is to ensure that

neither fear nor greed have any place in the decision making process.

You can see that this was a well thought out swing trading opportunity

which was only possible because conditions and trading rules worked

hand in hand. Both must be present in order to set yourself up with viable

trading opportunities and to put your money at risk.

I will also make a case to not take a trade but that will rely on the chart. I will use what I know about how price moves and what things can mean to

not involve myself in a possible trade.

Too many listen to the news, read the forums, or use methods that don't

take into account the actual mechanics behind the market. Every reason that you come up with to trade or not to

trade must come from you.

Much like a lawyer in court, every piece of evidence is weighted and stacked upon previous declared

evidence. They build their case to the best of their ability, rest their case, and

then let the results play out as they will.

As traders, that is what we must do.