When you’re working on your own, as so many traders are, it’s easy to end up slipping bit by bit from best practice. But that way lies sliding margins and unhealthy mindset habits.
In this blog, Gavin Holmes, Tradeguider CEO, talks us through some of the key guidelines we share in the strategy documents we include with our software packages. They will help you stay on track with your trading and keep taking profits.
Rule 1: Practice the Strategy in Demo Mode First
Do not trade a live account until you have made 100 trades on a trading simulator, recorded the results and taken screenshots of each trade with risk amount, profit target and actual results achieved. This is to ensure you are comfortable with the strategy and have fine-tuned it to your personal risk tolerance and style.
‘There is a massive difference when you are trading with paper money,’ says Gavin. ‘You take risks you would never take with [real money]. Once you fund your account the emotions you experience when the market goes against you are completely different to when you are trading on a simulator.`
`Whether you are investing or doing intraday trading, we strongly recommend you write a written trading plan to go with the strategy you are willing to adopt.On a simulator you are learning the VSA principles but when it’s a live trade, real money, you need to have a strategy in your head.`
`Start with a micro or mini account of $500 or $1500 – you can do this with many brokerage firms. Start small; it’s smaller losses and smaller gains.You will learn to train your mindset in the face of difficult emotions and this will stay with you as you scale into a larger account.’
Rule 2: Beware of the News - Be a Predator and Not the Prey
Check the major news bulletins and stories connected to the markets you are interested in. We recommend you use a reliable economic calendar/news feed. We would recommend Financial Juice, Forex Factory and Bloomberg`s economic calendar.
Gavin wrote a whole book about this – `Trading in the Shadows of the Smart Money` – so head over to our Book Library and get hold of it there. You can also see two examples of manipulation at work if you go to www.volumespreadanalysis.com and watch the video with Tom Williams talking about the tricks he and his colleagues used to engage in. Also take a look at the info about the BP disaster in the Gulf of Mexico in 2010.
Rule 3: After Seeing High Volume Bars, Look for Low Volume Bars at the Same Price Level
Bearish volume is increasing but not massive volume on down moves and low volume on temporary up moves.
Bullish volume is increasing but not massive volume on up moves and low volume on temporary down moves.
Remember: if the professionals are not active then you shouldn`t be either.
‘The market makers mark the price up and get all the buyers to come in and the market starts to go up,` says Gavin. `But professional money isn’t selling so the volume is low as the professionals are getting ready to collapse the market.`
`In a Distribution Phase – where the professionals are selling – the market starts distributing with an ultra-high volume up move as the herd buy, perhaps on good news potentially. Because the smart money have already bought they can now sell their holdings at a profit. The volume becomes extremely high as both the professionals and the uninformed are interacting at the same time – hence you get massive volume. The market pulls back on the price and then it goes up and the volume is very low…..Most often we see a No Demand signal that the market is about to fall.`
`If it is an Accumulation Phase - If you just turned the chart upside down – this would be bullish behaviour rather than bearish because the professional money have marked the price down. They want everyone to go short and then bought the market and as the market rallies it comes down at very low volume cos they are not selling but buying at the bottom,` Gavin explains.
Rule 4: Wait for the Distribution or Accumulation Phase to Complete
Wait if you are in the pre-rollover and top (if a Distribution Phase) or bottom (Accumulation Phase) of the market stages.
In a Distribution Phase: Why? Because the start of the Distribution Phase takes place in an uptrend and you’re looking to go short. You want to trade in harmony with the smart money. So this is a potential trade setup but is not yet ready to execute.
Then in the rollover phase check the following:
In an Accumulation phase: Why? Because the market has not yet turned over. It may just be pausing before it continues an up move. If in a higher time frame, look for the rollover in smaller time frames and confirmed Signs of Weakness. Rising prices on falling volume on narrow spreads are signs of a weak market. Just wait for it to turn.
‘The biggest failure of the newbie trader is that they don’t want to be patient,’ says Gavin. ‘They don’t want to sit in front of a screen for 4 hours not doing anything. So wait for the right phase to appear on the chart.`
Rule 5: Stop Losses
Use a stop loss and remember there is no guarantee that the stop loss you put in will get filled at all or at the level it was set especially during very volatile market conditions. Speak to your broker about this if you have any concerns.
The strategy does not suggest exact stop placement because of the many markets it is capable of analyzing and the wide variation in attitudes to risk amongst the traders that use it.
Neither does the strategy focus on take profit or risk/reward ratios as these decisions are for individual traders, bearing in mind trading plans, account sizes and attitude to risk.
‘Some traders get taught by the educators to put them too close and they get stopped out all the time so they don’t use them,’ says Gavin. They could just move them but they don’t.`
`The stop loss that you place is dependent on which market you trade, how big your account is, and what your tolerance is – a very individual thing. We can’t tell you where to put your stop losses. They will be different if you have a $10 million account to a $1000 account. With $1000 they might be 7 ticks, with $10 million you might have a 500 ticks stop loss. It needs to suit your style of trading and your strategy.’
‘I don’t think I’ve ever met two traders who trade identically – ever and I’ve met a lot of traders,’ says Gavin. ‘This is a framework to assist you to find your own rules to add to these that you are comfortable with. You need to adapt – some rules you might agree with and some you might not – adapt it to suit your trading style’
Tradeguider is the home of Wyckoff VSA. We`ve distilled some key Wyckoff VSA principles and an easy-to-follow strategy into our Trade to Win VSA Lite software package which is cloud-based, runs on TradingView and can cost less than $2 a day depending on your subscription. Total beginners can use the `Getting Started` course which comes included in the price and you can see us using VSA Lite to take real trades in our Live Trading Room which veterans and newbies alike are enjoying. More details here.