The first stage is the analysis:You take a look at the charts and decide whether a trade should be taken.
The second stage is the planning stage: You decide if you will take a trade, and now is the time to develop a trading plan. You will place your order to enter this trade at a certain price, and you will place your exit for the trade at a certain price, whether it be at a loss or gain.
The third stage of every trade involves the entry: the price at which you begin your journey on the trade. This price may have been predetermined; you may have decided that you will enter the trade if the market goes to a certain price, or perhaps you just use a market order and enter the trade immediately at the current market price.
The fourth stage involves managing the trade, this is where Market BiofeedbackTM comes in, and you are anticipating and reacting to the market data that comes back to you via the chart while you are holding your trade.
The fifth stage is the exit. This is the most important stage of the trade. You make your money when you make your exit and your paycheck is received.
The sixth and final stage is a learning phase. This is where you examine your trade from beginning to end and give yourself a grade.
In each of the six stages, you have an important goal (Table 11.1).
TABLE 11.1 Six Stages of the Trade
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- In the first stage, your goal is to determine if the risk is worth the reward.
- In the second stage, your goal is to create a trading plan that you will stick to for the duration of the trade.
- In the third stage, you are attempting to enter the trade at a point where the odds are in your favor.
- In the fourth stage, your goal should be to maintain an open mind and to learn from the market information available on the chart.
- In the fifth stage your primary purpose is to make money.
- In the sixth stage, the goal is to improve your trading by learning from each of the previous five stages. In this way you can identify which of the previous five stages is your weakness.
Many traders find the fifth stage incredibly challenging. For most traders, deciding on an exit strategy (and, more importantly, sticking to this exit strategy while managing the trade) is the most difficult aspect of successful trading.