The most important skill for a trader is developing their own edge of the market , which in simple is basically their own practically tried and tested approach for a winning trade. This edge differs from one trader to another , forming basis of price movement in market. As this edge comes out from experience from a number of practical trades , it builds up the trader confidence when executing trades and increases its quality.
One such approach shared by our community price action trader is the 7 step SLMDRTC method.
SLMDRTC is a short form of below 7 steps which are executed in below sequence for each trade.
- S - Market structure
- L - Current Price Location
- M - Momentum
- D - Possible direction
- R - Risk and Reward
- T - Trade entry
- C - Trade exit / close
S - Market structure
This step involves analyzing the market structure
- Analyzing the charts , candles structure , plotting support and resistance trend lines
- Major trend setting zones where the price movement is extreme
- Points where the price reverses its direction
- Major supply and demand zones
- Setting alerts when such major points are hit
- Where is the price located now , how far is it from the trend lines or zones
- How has it reach this location , path it took from its earlier historic value
- Is it in a new fresh zone / already tested zone / invalidated zone
M - Momentum
This step involves analyzing the strength of price movement
- Where was the last balanced zone where there was maximum trading between buyers and sellers and orders filled
- From this zone , once there is imbalance - who are gaining strength is it buyers or sellers
- How fast is the price changing in this direction
- Is the change drastic within short time or is loosing strength slowly with time
- How volatile is the momentum , are there drastic ups and downs in either directions
- When near a major zone , is the price stalling for a major move
- Has the price broken out the major trend without much time spent
- Is it the price testing the new zone first time or repeated times , how many times
- Has the trend line been tested sufficiently earlier for a possible breakout
- Is there a major counter action in opposite direction when price breaks out
- Nearby previous trends which may result price to retrace on breakout
R - Risk and Reward
- Is the entry point very near to the target zone
- Is the stop loss level point as per limit from the entry point
- Is the entry point providing sufficient risk reward ratio , preferred 1:2 and above
- Approximate time it may take to reach the target set to decide on a intraday / swing / scalp trade
- Decide the entry point , position size , stop loss and target prices
T - Trade entry
This step involves entering the trade
- Execute the trade with appropriate order type i.e with limit / market value / trailing stop loss / with stop loss / cover order / intraday order
- Periodically monitor the progress.
C - Trade completion / Exit
This step involves executing the trade
- Exit from trade only either on target hit / stop loss hit / preferred position time reached
- Clear any open trades for the symbol / instrument if pending
- Record the trade profit loss statement in trading journal for reports and analysis