A good trade is one that has the highest likelihood of turning a profit with the least amount of risk. This online spread betting guide to finding high probability low risk trades should help.
What tools should we use to sniff out high probability low risk trades?
To further expand this I have listed some important personal/psychological factors that play an important role in this process -:
Let's take into perspective the futures market. This market allows you to trade a particular commodity, share, currency, index...etc at some future date. These are also known as derivative markets. The price of the futures market is derived from the cash market. As you may know you will never own the underlying asset. So, we can buy and sell these derivatives without ever owning them.
Futures contracts expire on a quarterly basis, which allows more time for a trade to come to fruition and reduces rollover costs. Remember futures contracts will normally trade at a discount or premium to the cash market. So if you are using a chart for the cash price don't forget to factor this in.
Manage your money and reduce your risk -:
Where to enter? You need to spot where there is a high probability that the market will go up or will go down. You can try this by using two moving averages that mirror the price action as closely as possible. Start with a 20 and 40 day moving average and adjust to fit. Look for both averages to be facing up or down. Investigate what has happened to trading volume prior to moving averages crossing or turning up. A spike in the volume is a good indication that the price will be breaking into a new trend. Look for the price to surpass a previous resistance point. If all these indicators converge then you may have a high probability trade.
Where to exit? Use a trailing stop loss (or stop out) just above or below (depending on whether you have buying or selling) the shorter of the two moving averages.
Placing your stop loss is an art and not a science: this you will realise when you get trades that stop out too soon. Remember our goal is to get more winning trades than losing ones and to ensure that the losing ones are cut short as soon as possible.
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