One trade is meaningless outside a trading system. A trading system can not be implemented without a trading plan. Entries are just the beginning; the exit is what determines if a trade is profitable or not.
Here is the structure all traders need for long term success:
- We have to create a trading system that back tests show would have been profitable.
- We then create a trading plan that shows how to execute our trading system with real money.
- You need quantified entry signals to tell you when the risk/reward is in your favor.
- Position sizing has to be determined based on volatility.
- The risk of ruin has to be eliminated or you will eventually blow up your trading capital.
- A trader needs to trade primarily in the direction of the trend in their time frame.
- We must have a price level that will tell us when were wrong about a trade and need to exit with a small loss.
- We need exit signals to tell us when to exit and lock in profits when we are right.
- We must have trading rules that override our fear, greed, and ego.
- We must have the discipline to follow our trading rules no matter how we feel.