It’s sound advice, but rarely does the person saying it explain how to keep things simple. With thousands of articles, indicators, strategies, and traders saying different things, how can you distill all of that down and keep things simple? Keeping your trading simple means following three steps for every trade and focusing on just one step at a time.
3 Simple Steps
Setup: To be an effective trader, you need a trading setup. In a sea of constantly changing conditions, you need to filter out all irrelevant information on your chart. The setup is a precise set of conditions that must be met to signal that a trade may occur. Each trader’s setup will be different; for example, you might only trade breakouts from triangle patterns in the first two hours of the trading day, or in the hour after lunch. The triangle is your trading setup. When a triangle appears, it tells you that a trade may be close. Until the triangle forms, you stay relaxed and focus only on looking for triangle patterns. By having a setup, you keep your trading simple. Don’t worry about whether the price is going up or down or what the news is saying. Until a triangle pattern (or any specific trading setup you have) appears, you don’t have much to think about. Until the setup occurs, you cannot move on to the trading indicator.
Trading Indicator: The best trading setups tell you in advance (at least somewhat) where your entry point is. Once a triangle pattern appears on the chart, you know your entry will occur when the price breaks beyond the outer bounds of the triangle (if that is your trading indicator). The trading indicator is an event that occurs after the trading setup and tells you it’s time to enter a trade. If you are using an indicator, the trading indicator could be the exact moment the indicator crosses a certain level or crosses another indicator’s line.
Risk/Reward Assessment: A setup has happened, and you have pinpointed exactly where and when you will enter the trade. At each stage, there is nothing else to think about – in the first stage, you monitor the setups, that’s all; in the second stage, you identify your entry point. After having a setup and waiting for the trading indicator, the next step is to determine whether you will proceed with the trade or not.
If the potential reward based on your setup (and your research and testing) outweighs the risk, execute the trade when the trading indicator occurs. If the potential reward does not outweigh the risk, return to step one and start looking for another setup.
Being aware of economic or company news events is part of the risk/reward assessment. Since we cannot know in advance how the market will react to an economic release, avoid making (or being in) trades three minutes before or after the release of high-impact economic/company data. Check the economic calendar before the trading day begins so you know data release times. Block out those times on your charts so you know you are not making trades, allowing you to focus on each stage as it comes.
Conclusion
At any moment during the trading day, there should be only one thing you are thinking about, and that thing depends on the step you are on. All other information is irrelevant.
First
Just focus on finding your trade setup. Once you find the trade setup, just focus on locating the trade signal. Once you know the trade signal, you can determine where your stop loss and profit target go. Based on the stop loss and target (or win rate for the strategy), focus on whether you will trade when the trade signal occurs. If the trade makes sense, execute the trade when the trade signal occurs. If the trade doesn’t make sense, return to step one.
This is how to keep your trading simple in real-time. This requires that you have done your homework. You need to identify a trade setup, determine what a respectable risk/reward ratio is (and how to calculate risk and reward), and it also means you have isolated a specific event that tells you when to enter trades.
Source: https://www.thebalancemoney.com/keep-your-day-trading-simple-here-s-how-to-do-it-1031073
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