Lane Clark Trader tips – Making High Probability Trades

The trading world wouldn’t exist if individuals and organizations had exactly the same ideas when it came to making investment decisions. One persons opportunity, is another persons chance to walk away from the markets. One individual will trade technically, whilst another will not look past his or her fundamental ideas. One individual may day trade, whilst another takes positions that last for a minimum of three weeks.

This is what makes trading the financial markets as interesting and challenging as they are.

But how do you know what methodology suits you?

Probably through trial and error!

Studies have been conducted in the past showing that a random group of individuals can be taught the same trading techniques/systems, yet still when trading the same markets, get vastly different results. The ‘Turtle Traders’ being the best example. But how can this be?

The reason being- the individuals psychology comes into play. This is why I would say that people have to sample with different techniques to see what best fits them.

If you do veer down the technical trading route, one thing you can implement to try and separate yourself from other traders, is to attempt to make HIGH PROBABILITY TRADES.

This separates the good trader from the bad trader.

Here are a few ingredients of becoming a high probability trader:

1. Know what the trend is and trade with it. Rewards can be found for traders buying against the trend, but why risk it? Remember that the trend is your friend, until it bends.
2. Use multiple time frames. Would a golfer play 18 holes with only a driver or a putter? Of course he wouldn’t. So why should you look at only one chart. The best trades are the trades that look good in multiple timeframes.
3. Assume the main moving trendline or moving average will hold. Some people see a strong trendline or moving average and feel it has to pull back. Don’t fall for it. Yes, there will be retracements, but don’t try and second guess them. Assume the trend will stay in place until you have reason to think otherwise.
4. When looking at trend lines, bear in mind that the smaller the slope of the trendline- the more reliable it is. If the slope is too steep, it will probably be broken.
5. The longer period the moving average is, the better it defines the trend. Why use a 5 day moving average when a 25, 50, or 250 will define the trend for you far better.
6. Before entering the market- wait for a pull back. Although it is tempting to enter the market, the prudent trader will wait for confirmation of the break, and wait for a price he/she is happy with. If it means missing a trade- so be it.
7. Do not chase the market. If you do- you may find people will profit take and you would have bought right at the top of the market.
8. Don’t fight the market. There will only ever be one winner.
9. Bear in mind that even the strongest trends will have pull backs. Mass hysteria sometimes takes over. Stay calm, stay cool, stay focused, and you will be rewarded by entering the market on a pullback.
10. When buying into the market, the closer the support/resistance level is below the price, the better the risk to reward ratio is. You will find if it breaks these levels it will continue to fall, so have your stop fairly close behind these prices where the support/resistance levels are.
11. Employ the ADX to find out whether the market is trending or ranging. Strong trends have readings of 30 and over, range trading conditions have readings of 20 and under.
12. Combine trend following systems and oscillators. Oscillators are great to pinpoint turning points, particularly when combined with other instruments.
13. Have a reason for every trade. If you don’t- do not take the trade.
14. Know where the Fibonacci support levels are. Many traders view them, and so should you.
15. Place stops outside of these potential retracement levels. Far enough away to avoid short term volatility but close enough to stop the trade if the levels break.
16. Maintain your discipline. Because if you don’t- you’ll lose.

There is no sure way method of making money in the financial markets but by becoming a high probability trader, at least you are shifting the odds in your favour. Look at the poker player- he knows the odds of getting any hand. He only bets when there is a better pay off ratio than the odds involved. If he needs a 6 and the odds are eleven to one, if someone bets 10 pounds, he’ll only bet if he can win at least 110 pounds. If the pot has 400 pounds in it, he’ll take the bet every time. He may not win that bet, but it was the high probability move, and the wise decision.

Take that mindset into your trading, have a reason for every trade you make, and you may find your results begin to improve.