Thursday, 28 April 2011

How to stop exiting too early - How about "EXIT SETUP"

I have noticed many people struggle with identifying correct setup.
Once that is done the next problem comes staying in the trade until "Exit Setup" is created.
Lets now create a new mindset. Lets give it names.

Its time we make  firm decisions and promise to stick to it.

To trade we look for what we call
Entry Setup.

To ensure our setup is there we would look for the following rules, while "staying in the now". This is the mental condition bit. Stay in the NOW. How do we stay in the now? simple, look at Current AO Bar, Current Gator Lines, Current AIMS levels. We can also have an overview of entire picture but most important is current ones.

Lets Look at our Rules, that "create" our setup.

Three Trading Rules to make it simple

Rule 1 - Is the Alligator Sleeping?

Rule 2. Is AO Close to Zero Line? Preferably flat at Zero Line.

Rule 3. Is AIMS Level Close to Red Line?
(Rule 3 Modified 28/04/11)

AO: Take Trades off the bars near ZL.
Alligator: Take Trades while lines are intertwined and flat i.e.  sleeping , atleast snoozing LOL.
AIMS:  Take trades ONLY on break of AIMS Level i.e. 1pip + spread above when going long, and 1pip below when going short, and prefer to take trades when AIMS levels up and down are not too far from each other.
so,

Rule 3 comes after Rule 1 and 2 are met already. By following Rule 1 and 2 we create the correct setup, whereas following Rule 3 would ensure we make entries close to exit point, ie. red line.

As a rule we can say, is entry close to Red Line?. e.g. entry should not be e.g +15 on m1 and +25 on m5, away from escape route, ie. the red line or the opposite AIMS level, which ever you decide to take as exit point.
Note: 15 or 25 pips distance is for demonstration purposes only. Although it applies to EU during LO and NY session, since each pair has different wave length and behaves differently during different  periods of the day, of the week, of the month, of the season etc. brings different volatility and character.

Following the above would ensure we focus more on "Taking Profits" and less on "bailing out", "Taking Heat", "Paying Rent", "Losing", "Giving it Back". We need to take such words/statements out of our vocabulary. To remedy the "Negative" words/statements I suggest we use. 

EXIT SETUP 

After we identify and take the Entry Setup we search/wait for Exit Setup.

Rule 1.  Has Candle Closed on Red Line? (Or green line if that's what you decide to use, its entirely up to you, but I'd suggest stick to Red Line to start with)
Rule 2. Has AO Changed colour? if yes has it Diverged as well? I yes to both Exit at will, or tighten SL by either following candles or following AIMS either on current or lower TF. This would ensure we take maximum pips out of a move.

Note: Exit Setup just came to my mind and instead of losing this thought I've recorded it here. Expect some fine tuning later.