Have you ever wondered what make a trade a great trade?
Outlining the qualities that makes a trade good or bad can make the difference between becoming a consistently profitable trader and failing.
Not all profitable trades are good, just like not all losing trades are bad. There is more here than meets the eye.
Below, I’m going to share 3 traits that I believe every trade should possess to have the highest probability of success.
#1 A Good Entry Point
Unlike the conventional wisdom in this space, a great trade has a good entry. If you enter at the right price you can better cope with any potential drawdown. A good entry point will ensure the drawdown is minimal and you are more likely to hold on to that trade to reach its full potential.
And, secondly, a good entry point will allow you to increase your profit potential.
#2 A Time-Based Stop
Secondly, a great trade has a time-based stop.
Let me explain:
A time stop will teach you to let things go when a trade doesn’t act as it should act in a timely manner.
From my own experience the best trades are the one that show a profit right from the start.
If you’re in a trade and the market doesn’t do anything for let’s say the first 30 minutes or 1 hour, that can be a warning sign especially if you’re a momentum trader.
The market will be here the next hour and tomorrow there is always going to be a new trading opportunity. It’s better to play on the safe side than to be sorry later.
#3 Market Conditions
Are the market conditions working in your favor or are they working against you?
Let me explain:
You can’t have a trade that goes in your favor without the right market conditions. Put it simply, the market can either be trading or ranging.
If you’re looking for big swings in the market, you need to have a trading market. Or, if you’re looking for mean reversion make sure the market is stagnant.
In other words, it has to be the right trade for the right conditions.
The main idea to bring home is to focus on the process and not necessarily on the outcome of the trade. Don’t forget before you even consider pulling the trigger on a trade, make sure your trade has these 3 qualities: good entry, a time-based stop and the right market conditions.