🔹Entry Condition & Money Management
What is the Entry Condition?
Entry condition is the last condition that is needed to place the order.
Entry condition comes in the form of patterns or - swing or candlestick patterns or price levels support resistance levels
Entry condition is critical for trading as it ensures that your risk is a calculated one and the reward is bigger than the risk.
Some of the Entry conditions are :
break of channel/ flag.,
break out of a range and then a pullback,
At the pull back the trigger can be a candlestick pattern at the touch of 61% fib retracement level during the correction
at a test of the last broken level which now becomes a resistance level
Invalidations are points where the Entry condition pattern fails. E.g. If a candlestick pattern is reversed after you enter, the pattern is invalidated and you should plan your stop loss around this invalidation point/level.
Money Management
As a trader, you should aim for a low-risk high reward like 1:2 with a monthly win rate (for a day trader) of your trading system being at least 55%. With a 1:2 risk reward, you can also have your win rate at 40% and still be profitable. After you have achieved a risk: reward ratio of 1:2 and a win rate of 55% or 1:1.25 with a win rate of 60%, your money management strategy will determine your success as a trader. To do this, follow these steps:
a. Know the average no. of trades you would do in a month. For a day trader, it can be 15-50 trades depending upon your trading strategy.
b. Your trading system should have the potential of giving at least 0.5% to 1% net returns a day consistently.
c. Decide on the overall risk on the capital (ROC) starting from 5% up to 50%. This decision is taken by the trading capital fund owner. The less the risk, the less will be your net monthly gain when your average no. of trades is constant. So if the overall ROC is 5% you spread it to the average no. of trades so it is 5/20=.25 %. To increase your monthly gain trader will have to improve on the R:R or win rate with a minimum R:R as 1:2
d. When you start, risk 0.5% to 1% per trade with a risk-reward of 1:2 or 1:1.5e. Know your lot size:
Know the risk % amount of your account (account size $10,000 so risk % amount @ 1% risk = $100)
calculate pip value = Risk% amount / stop loss in pips
Pip value = risk amount/stop loss in pips. E.g. $129 your lot size will be 12.9 because 1 lot size or volume 1 is 10 USD per pip
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