The first thing to be clear on when deciding when to enter a trade is your trading plan. only enter trades that align with your trading plan, because they will give you higher profit potential and you will be able to manage your risk better. knowing what kind of trader, you are, and what your plan is, will help you choose the trades that align with your personality portfolio.
Are you an investor, day trader, swing trader or a trend-following trader? if you are a trend-following trader, is there an established trend in the market? is the market going up or down? if you are bearish, then avoid trading when the market doesn’t reflect a bearish pattern – wait for possible reversal points before you enter a position.
A trade trigger helps you decide when to enter a trade. after you have established that the market has the right conditions for your trading plan, you need to have a specific trigger that tells you "now is the time to enter or exit the trade". whether the market is in an uptrend or downtrend, there are specific features in each trend that provide better opportunities to trade than others.
For example, after the price has widened, you may wait for a pullback, or for new highs to form. if you are bearish and you think that the trend will reverse, wait for a bearish engulfing pattern. you should always look for precise events that help you distinguish trading opportunities from the overall price movements.
How much are you likely to make from the trade you intend to place? is it worth your time and effort? don't just choose your profit target randomly but base it on something measurable. look through the charts to see the targets that are being projected based on the pattern. trends will also show you the possible reversal points based on past price action to help you determine the profit potential of the trade.
For example, if you buy near the bottom of the chart, you can set your price target closer to the top of the chart. having a price target helps you identify the right moment to exit a trade so that you do not hold it for too long and start incurring losses.
key takeaways
- No matter what your level of trading is or your experience in the finical markets, a trading plan will always help you enhance your trading activities.
- Knowing what kind of trader, you are will help you develop a trading plan that aligns with your trading personality.
- Define your tradable trend to avoid placing a trade when market conditions do not reflect your trading plan.