Each trader has his/her own trading style but over the years I've developed my own personal trading strategy that I share here:
First, you need to answer some questions:
- Question 1: How much money are you willing to go per trade: $1,000? $5,000? $10k? More? Less?
- Question 2: How much money do you accept to lose: $100? $200? $500? More? Less? (I know, I know… in “Fairy Tales”, no one loses money but this is real trading, so the sooner you accept that you will lose money, the better!! It’s on your hands, how much!!
- Question 3: Are you looking to place one full size bet at once or go with 25% of full size first to "test the waters"?
In the last couple of years, I’ve adapted my trading style to market conditions and currently I’m adding 20-30% size on the starter position and if trade goes in my direction I add size all the way into 100%/full position or can go up to 2-3x size if really confident.
IF trade goes opposite, I set my stops based on my answer to question 2. It can be 15%, 20%, 30% stop loss from entry, depending on the size of my position. Losing $200 on a $1k or $10k bet is the same loss in dollars but completely different percentages, so "percentage stop" is irrelevant for me! Setting the dollar amount you are willing to lose is the most important to define before you even place the trade!
IF trade goes in my direction, I can add more size and then start setting limit orders of 1-2 contracts (depending on my position size) at ask and above the ask so when momentum comes, my orders start getting filled one-by-one.
So, before I even enter into a position, I already have predefined where I will put my stop loss and what are the levels where I will take profits.
I usually close half position when trade doubles from my average entry and keep raising my stops on rest until momentum fades and my last contracts are sold.
I also only use Limit orders for my entries and exits. Even if I have to chase to enter or exit a position, I always use limit orders.
For faster execution, I also have set HotKeys so I can open, add, trim or close a position faster.
There is no magic formula in trading, but these rules have helped me keeping consistency, respecting my risk management and keeping my seat on the table since 2008.
Hope it helps!