Trading Rules Archives - Chart Trader

Bigger Picture Frame Captures your Trading Life

If you have a bird’s eye view, it is a great way to get a wide view of valuable information in life with respect to making decisions that have a vital impact on things like lifestyle, diet, health care, etc.  Looking through a larger optic helps to tow in additional significant information to help choose directions that support more effective efforts at living the kind of life you desire. It is not much different concerning the intricacy of the trade.  At the 3500 ft level, there are so many additional viewpoints within your view as you recognize the major portion of information to set-up your trade plan.

bigger picture frame view
Trading with Daily Time Frames
In this blog, I will be focusing on the daily time frame as one of the ways to address the big picture in your charting. I have, and many traders still do, use the 15 – 30 – 60-minute and daily time frames to prepare, plan and execute the trade. To be clear, the small time frames do provide detailed data regarding the trend direction, supply and demand area, and the entry, target, stop and exit decisions. However, smaller time-frames such as 5-10-15-30 minutes require more time and energy to trade due to their volatility which becomes emotionally problematic for many traders.

Let’s take a look at the recent trade I took in Reliance March Future contract. If you look carefully at the Daily chart (which is considered a bigger frame) you will find the perfect trade set-up. This chart indicates there is a Buying opportunity in this particular stock. At the time of entering the trade, the broader market such as Nifty, Nifty Bank, Dow Jones, HangSeng, Nikkei were trading lower but nearing there larger frame Support level. When such a golden data and opportunity appears in front of you, you must take it in both the hands. And it is also easy for us to create a trading plan that associates with flawless execution because you are very much sure about the outcome.

reliance future contract
Dow Jones Index Future Chart from Investing.com
Dow Jones index future chart

On 2nd March the price was trading around our pre-determined BUY level. And when it reaches at the Price of 1314, we bought 2 contracts without any hesitation. We set the Stop loss order @ 1297 and two different time-frame Targets. Now you might wonder why set up two time-frame profit targets. This is because as I stated in my previous articles we always take the profit out of our position when it is presented to us (this is the nature of this business). The two time-frames target we set-up which were 1-Hour Chart and Daily Chart. The target of a 1-hour chart is 1348 (which gives 2:1 risk to reward ratio) and the daily chart target is at 1366 (which provides with 3:1 ideal risk to reward ratio).
Future contract of reliance stock

The 1-Hour chart trade below was successfully run and we captured 14% profit in just 1 trading session. We are waiting for our second target which is set at 1366.
successful trade in reliance future contract
You see, using larger time frame charts can help you taking correct steps which leads to increased profit potential. It also helps prevent you from micromanaging your trades. Micromanage means you use a smaller time frame, smaller time frame leads to more stop-outs and more stops outs equals less profits. You are here in this trading business for some purpose. And it is very difficult here to survive if you make even a smaller kind of mistakes. You need to first prevent yourself from trading more frequently using smaller time-frames and then turn your attention on the daily chart which can assist you in making trading decisions with added calm by fully supporting your emotional management.

Trading Rules- Your Life Savior in the Ocean of Trading

For most of your reading this, the conception of rules and its importance to your trading life may be a no brainer and I certainly wish that is the case. But, some of you have some serious issues with following the trading rules that you have established. And you are not alone. Every day, thousands of traders are breaking rule after rule; and in a lot of these cases, they feel completely baffled as to why they keep doing things that a moment ago they were adamant that they would not do, like moving hard stop-loss as the price action is moving toward it. Or on the other hand, failing to do something that they promised that they would; for instance, finishing the “trade plan.”

Some traders are treating their rules as indicators of what they could follow rather than what they must follow. Some traders think that rules are non-compulsory and sometimes they follow them and sometimes they don’t; this type of thinking demolish trading results and wipe out your account. Trading with a weak dedication to your rules is serious.  To really support your trading, rules must be approached with an uncompromising commitment. Rules are your capital protectors and can be considered a life jacket in a turbulent sea because they are designed to inform your decision making when you are in the shark-infested ocean of trading. For that reason, rules are essential to trading. According to one of the world’s investor superstar “There are two rules for trading. Rule no. 1) Don’t lose money. Rule no. 2) Don’t forget rule number one.

Discipline and good habits are built the same way, one trade at a time. Well planned out rules that are followed precisely make the difference between being successful and blowing up your account.

Let’s take a look at the trade taken in FEDERALBNK Feb Futures contract on February 18.

equity futures trade plan

The price reached our pre-determined BUY level in the early trading hours. We bought the contract hoping to reverse this to our pre-determined SELL level which is at 90. We also set up our Stop Loss near the lower portion of the yellow lined box. However, the broader market index like Nifty, Bank Nifty and other sectoral indices had huge selling pressure due to which our trade could not make a move to a higher level as anticipated and we were stopped-out for losses.

If you see in the next chart, the price of the contract we traded moved much lower. Had we not set-up a stop-loss order, we would have incurred much bigger loss than what we’d imagined. This is the reason we must always follow the trading rules. Your rules are there to assist you in keeping-up focus on what matters most in your trade plan and follow-through. As you continue to respect your rules consistently you will develop robust habits surrounding your ability to follow-through and keep commitments. Below the outcome of the trade.

equity futures trading rules
Tough we had incurred loss in this particular trade; we are still profitable because we had some successful trades in the past which had met our Risk to Reward ratio. The key here is not to lose too much money out of your trading capital on a single trade. We can still look for some other trading opportunity another day. And also note that we will likely have more losers than winners. That means the only way you can only become better in this trading world is by learning how to minimize your losses, which we did in the above example.

Remember, whether you are an Intraday or Delivery trader, trading from your highest and best self is all that matters to your trading results. And your trading rules are your true protectors, dedicate yourself to them.

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