This is one of the most used quotes in financial markets. It is posted on every specialized website, forum and we might even have used it before here on prior articles. The key to make money on financial markets would be to Keep Your Trading Simple. But what does this really means and how to efficiently follow this rule? This is what we will try to cover on the below article. We hope that it will help you on your daily trading activities, that it will improve your performances and that it will teach you how to Keep Your Trading Simple. When someone says “Keep Your Trading Simple” we each tend to think of something slightly different because we all have different trading experiences, we all have different favourite indicators… Nevertheless, there exist general rules that anyone can follow to keep its trading simple and improve its risk-reward ratio.
Simple means that you first need to follow simple steps
Each trade must involve a set of steps that you need to follow methodically. The transaction must be triggered by a strict number of rules that you need to define yourself. It can involve the coordination of different indicators meeting certain conditions (RSI lower than 30 and MACD cross from below triggering a BUY order for instance), or the underlying asset crossing a specific level (a specific moving average or a specific resistance). Once this set of steps is met, you need to trade whatever the external conditions. So keeping your trading simple means you have defined a set-up. Something that you have previously determined needs to occur in order to trigger the opening of a trading position.
If you want to keep it simple, define a basic setup as well as a trigger level and stick to them. It may take some time and work to find a setup and a strategy that generates profit, but it must be done. This is the only way to be able to build simple and reliable trading strategies.
Determine a time horizon, a target and a maximum loss level
Now that you have setup that identifies simple trading opportunities and a trigger level to open the position, you need exit levels in terms of profits and losses as well as a time horizon. If your setup has been built to identify short-term trends, use short maturities and vice-versa. Binary options with longer maturities are mainly used by fundamental traders that try to speculate on longer trends. By definition, traders tend to use far price targets and close maximum loss levels. When the setup identifies a trade opportunity, it is always better to benefit from a large upside until the next price resistance and risk a small downside until the next support. If a setup looks like it could form, you need to begin to consider what type of expiry you would choose if this setup turns into a trade. Confirm your decision so that if the price hits your trigger you can act without hesitation.
Stick to this setup and adjust it until it works – Make your trading simple
Keeping once trading simple also means that you need to resist the temptation of constantly switching strategies, assets or targets. Trading is an experimental process. You need to test your strategy and your setup, improve it constantly and learn from your mistakes and losses. Only through this process will you be able to isolate the wrong parameters and build both an efficient trading setup and profit generating trading strategies. Focus on a single trade setup, isolate a trigger and establish guidelines for how you will exit.
So this is how you keep it simple. Keep your trade set-up limited to a couple criteria. Then define what your trade trigger is. Set up a target price and a maximum loss level. Do it over and over while adjusting the parameters until it becomes efficient.