Do You Know a Great Trade When You See it? | The Lazy Trader (2024)

It's rare for any "hot tip" on TV or in the financial media to lead you down a path to a great trade. After all, you don't typically "follow the crowd" into winning trades anyway, since most of the time, once a trade idea goes mainstream, the story has, at least partially, played out already.

That's why a really great trade is one that you find and validate for yourself using pure price action, clear and decisive reasoning, and little or no trading bias and emotional attachment. There's no heavy reliance on trading the news, no validation from outside sources, and no "wait-and-see" attitude about it, because that's how fear, doubt, and indecision creep in.

The question is, though, are you open, willing, and clear-minded enough to see that great trade when it appears before you? And, perhaps equally important, can you keep your composure long enough to execute and manage it through to completion, and hopefully, a nice profit? That's what we want to talk about here today…

The True Hallmarks of a Great Trade…

More than just any old opportunity to get into the "sexy" or high-profile momentum stock everyone is talking about at the time, a great trade is one for which the odds are clearly in your favor. A trading opportunity is always specific to the individual trader, not the market in general. It represents the ideal blend of these unique characteristics, which we are all free to choose (and continually adjust) for ourselves:

Satisfies Exact Technical and/or Fundamental Conditions

Support and/or resistance levels, indicators, specific chart patterns such as engulfing patterns, and any other parameters required by your methodology will all be present and in place for any great trade.

Has Favorable and Clearly Defined Reward/Risk Profile

2-to-1, 3-to-1, or whatever your trading strategy dictates is fine, but every great trade will, without exception, have the proper risk reward ratio, because it's not just about how much you can gain if you win, but also how little you might give away if you lose that determines how attractive any given trade set-up truly is.

An attractive trading opportunity represents an opportunity to execute a proven methodology with reasonable expectation for certain (favorable) results. And that's what trading is all about, not making fast money, chasing thrills, or trying to beat the odds.

…And How to Have the Courage to Take the Great Trade

It takes plenty of trading skill and patience to find that set-up, but the funny thing is that the hard work isn't necessarily over once you do! From there, it requires a great deal of poise and courage to go through with that trade, and some new traders struggle more mightily with tradeexecutionand trade management than with the more mechanically complex analysis stages.

So why is that? Well, it's because that's when the emotion and trading expectations start to creep in that are the enemy of clarity and decisiveness.

Just think of all the nervous anticipation you feel knowing that you have a great trade on your hands. Suddenly, when facing the real prospect of a winning trade, you may begin to think, 'How much can I make from this trade? What will this do to my bottom line? Will it make up for those most recent losing trades?' And then, almost instantly, you're off track, focusing on money and end results instead of execution, and probably feeling some more serious pressure, too!

Traders must learn to identify this flawed thinking, accept that it may happen, and then quickly and calmly revert back to their correct thought process in the name of execution and optimum performance. That's how to make sure that you never miss a great trade, and that you hold up your end of the bargain, which is only to act clearly and decisively on all set-ups that satisfy your exact trading conditions.

Conclusion

Perhaps it's time we rethink our own definition of a great trade, in part to say more honestly what a great trade is, but also to reinforce what it's not.

You see, a great trade is not some set-up that pays 10-to-1 if it works, but that really has little or no technical or fundamental basis for doing so. It's not the "go-to" position or the "flavor of the week" that everybody else seems to be trading. And it's not some elusive "white whale" that only comes around once in a blue moon, either!

In reality, a great trade may only be great in the eyes of the beholder. Hell, it may not even turn out to be a winner in the end, but a great trade is one that fits the trader's eye, and that satisfies the unique requirements of their strategy. Remember, such strategies, such as scalping there are so many trade, none will be a great trade.

When you look at it that way, every trade you actually take can—and should—earn the title of "great trade," and that's probably quite different from your current interpretation, now isn't it?

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