In High Probability Trading Strategies, I stress how important it is to have a written trading plan and describe the elements that should be included in any trading plan. A trading plan may include objective “rules” and/or guidelines that must be met before a trade is considered. My suggestion is the first filter to consider a market for a trade should be completely objective.
In HPTS I teach how we use multiple time frame momentum conditions to filter a market for trade direction and trade execution setup. It is a 100% objective trade filter and ups the odds tremendously for a trade with a high probability positive outcome and, at the same time, only identifies trades with completely objective capital exposure.
Regardless of whether or not you use all of the trade strategies taught in HPTS, you should have some completely objective approach to identify whether a market is in a good position for a trade or not. Whether you use a momentum indicator, trend or volatility position or any other technical condition as the filter, it should be objective so you will only consider a trade when the technical position puts the odds on your side.
The technical condition is the first filter to identify if a trade should even be considered. It is not itself a trade execution strategy. The trade filter is only one part of a trade plan that includes other technical factors (price, time and pattern position), objective trade execution strategies and trade management strategies.
One of the primary reasons traders do not succeed or reach their full potential is they do not have a logical and practical trade plan. The unsuccessful trader is usually flying by the seat of their pants with no consistent approach that makes sense. Develop a trade plan with an objective initial filter to identify potential trades and you results should improve tremendously.
Oh yeah. If your trade plan is not written down, it doesn’t exist and you will eventually get your clock cleaned. So remember, trading is like any other business. Plan, review and execute. Then, plan review and execute again. As the old saying goes, “If you fail to plan, you can plan to fail.”