Source: Olymp Trade
Richard Dennis was a Systematic Trend Follower. I will present 10 trading tips that come from his method.
Do not miss the trend out
You want to trade when the market is trending. To ensure you will catch every opportunity, trade breakouts. While pullbacks may seem more appealing, they do not happen all the time. So trade the breakouts if you do not want to miss the trend out.
Set a trailing stop loss
You follow the trend. But it is nearly impossible to anticipate how high or how low the market will move. The tip from Dennis is to trail the stop loss. This way you will secure your position each time at a more beneficial level. Just do not set the stop loss too tight as this may result in closing the position on the retracement.
Do not close out of fear
It is natural traders want profits. High profits. And they open a position and see how it goes in the desired direction and at some point, they begin to fear losing what they gain. So they get out before receiving a signal it is time to close the position. Do not do it. Keep the transaction open until the situation in the market starts to turn against you.
Expect the unexpected
Markets are unpredictable. There are ways to forecast with some probability what will happen next, though, you can never be 100% sure. That is why you should expect the unexpected. Even if you think the market is so high (or so low) the only option is to reverse, you should still expect the unexpected. The market can go beyond the extreme and you can easily find proof in the historical data.
Keep your emotions in check
I am sure you have heard it hundreds of times and there is a reason for that. Emotional trading leads to bad decisions. You can be so nervous and afraid of losing, that you will exit way too early. You may be so greedy, that you will hold the position for too long. You may be frustrated and jump into the market just to rebound from the losses. All these are not helping you to become a better (which also means more successful) trader. You should keep your emotions in check and make trading decisions based on a deep analysis of the market.
I know it is not always that easy to stay calm while the situation in the market changes rapidly. You have to try, though. Prepare a clear trading plan that you will solemnly follow. There should be stated how much you can risk on a single trade (should not be more than 1% of your overall capital), how many trades you plan to perform during a day or what is your long-term goal. Having a trading plan on hand should help you to stay on the path of tranquillity.
Be consistent
Many traders will fail even when they have access to a profitable strategy. This is because they are not consistent in using it. After the first drawdown, they will just quit and search for another technique. You should not do this. Be consistent, analyse the situation that happened and the circumstances, maybe it is necessary to introduce some changes. Just do not give up at the first stumble.
Of course, the strategy should prove its viability. You can, for instance, backtest the strategy. When it brought profits in the past, it may do the same in the future (there is never a guarantee, though).
Start small
Although many want fast and big results, trading is a process that should be taken step by step. You have many things to learn and you will make mistakes. They are an inseparable part of trading. So it makes more sense to start small, begin with small trades and grow with time. Think about it as the surgery. A surgeon has to go a long way till he will be able to operate alone. And more importantly, each small step matters.
Price counts
Would you be surprised if I was to tell you I could trade even not knowing what market am I on? Well, I could. Why? Because it is the price that counts. No matter the name of the asset, the positions are entered and exited according to the current price. The price is driven by the emotions of buyers and sellers and in a long term, a trend is formed. You follow the trend so buy when the price goes up and sell when it goes down. That is all. The price is everything.
Be ready for loses
Loses will occur, you should be ready for them. False breakouts are likely to happen. And it does not mean the strategy of trading breakouts is all wrong. Because what matters is not how often you win and how often you lose. But it is the question of how much you win and how much you lose. Your wins should be able to offset your losses. And then you have great chances to boost wealth.
Focus on the long term growth
You should define your goals. Short and long term. But do not pay too much attention to the short term results. Loses will occur, and the systems will fail, but in the long term it may turn out that the result is quite satisfactory. So keep your focus on the long term growth rather.
Final thoughts
Richard Dennis has a lot to teach you. Although some argue that his method is not applicable anymore, the principles of his strategy are still in use. And every trader can learn a lesson.
Look at the bigger picture and try to understand the general notion. Identify the trend and stay faithful to your strategy. Apply proper risk management. Always think about preserving your capital. Do not let emotions take control and follow your system. The system is less difficult to formulate than to execute. You must demonstrate discipline.