Short term trading tips.
Before you enter a trade have an idea where your profit target is and make sure you have an appropriate stop loss level in mind. As we have discussed in other blog posts, if you are looking for a 10 point move in the market you want to make sure that you are not planning to risk more than 3-4 points as that would not be an appropriate risk to reward trade. If you are looking to make 120 points in the market you do not want to place a stop loss 6 points away as you have a longer-term time frame. With a longer term trade, you do not want to risk the getting whipped out of your position on a short-term market move only to have the market reverse in your favor. Know your target and set your stop accordingly.
Try to avoid leaving a tight stop in the market overnight. Overnight markets are less liquid and often deviate more as other participants get stopped out and the market over reacts to breaking news. Overnight, reduce positions and maintain wider stop loss levels.
Be very skeptical of a market with extreme sentiment in a given direction. If everyone is already vocally invested there is usually less momentum in that direction and when the market begins to reverse the move is even larger as everyone runs for the exit at similar levels. Timing on this is always the challenge and usually not an exact science but you can look at RSI and stochastic indicators to assist.
The key to trading is consistency and discipline. Continue to look for trades with good risk / reward profiles and don’t be afraid to walk away from a trade when your stop level is reached.