Trading a Higher Degree Success Rate Trade Setup and Requirements for a Transaction 1 Trade
The first thing needed is two time periods side by side together in the same direction of trend. It does not matter if the trend is up or down, it just has to be the same direction. I will mainly use the example of working with an uptrend. To determine the trend in each time frame, refer to the “Trend Report” page at the website elliottwave-forecast.com where we have this work done as we constantly monitor for changes. It can be 1 and 4 hour up or 4 hour and daily up or even a daily and weekly up to be considered a transaction 1 trade. These are the the transaction 1 trade setups presented in the members area under the “Trading Ideas” tab.
At some point, depending on the structure of the wave up, a correction will occur when the cycle of higher highs and higher lows ends. After some time in this correction, a lesser degree third time period should turn against the two higher degree trend directions. As an example, if you have a 4 and 1 hour trend up you would ideally want to buy the 50% retracement in the correction lower of the last 1 hour cycle up when the 15 minute trend was down/red correcting the larger uptrend.
Once a trader takes a position, the second lesser time period needs to remain in same direction after trade fills to remain valid. This is an important condition. If the trend changes and the trade becomes invalidated during the pullback there should be no entry and if a trader has already entered they should close the trade. As an example, if there is a 4 hour and 1 hour trend up/green and the trader buys the down/red 15 minute trend pullback correction against the 4 and 1 hour up trend, the trade is valid as long as the 1 hour trend does not change to down/red.
As Eric points out in the video, the money management of all trades is of equal importance. Do not ever take a trade where your risk to reward based on your stop loss and limit order to take profit are less than 2 to 1. This means if you are risking $150 your reward at minimum should be $300. Our system usually gives better risk to reward than that more times than not. Using an example of a $10,000 trading account capital, each trade at risk should not represent more than 1.5% of the total account equity if the trade goes against you. This would amount to $150 in this example. Take that $150 and divide it by a standard average 75 pip stop loss & it will give you a figure of 2, which is the size of the position to take. Using the above example of $10,000 total account size this would amount to two mini lots or a 20,000 k size position where each lot is of 10,000 k size. In the same 1.5% and $150 at risk scenario, in the smaller micro size where each lot is valued at $1000 each, you would take 20 lots. I hope this helps your understanding of trading with the trend.
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Trade safe, good luck and thanks for looking,
Lewis Jones
ElliottWave-Forecast Team
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