Origins of the Unknown
Learn how anyone can profit off ideas
Mid-Jan is normally full of choppy markets and frigid weather depending on where you are in the world. Some of you may become restless and want to take action. The thing is, with markets, you have to let time pass. It is not something you can wake up to every day expecting the next big move or something significant to happen overnight. Ideas take time. There is no way around this. You have to be patient in developing the idea, preparing a trading plan, and finally executing the ideas.
There are too many misconceptions about a trading idea or why we even call it trading. Suppose we break it down in simple terms. It all starts with a strong vision or idea. Maybe you heard something on the news or read an important detail that you think may have a broader impact on supply/demand. Never forget supply/demand is the core concept of what we do. Maybe you have experience in the industry and expect something to happen and can use this to make a forecast. It doesn’t matter how you came up with the idea. The purpose of what we do next is to determine if the idea has legs to run and earn you a profit.
A forecast is the beginning of a trading plan and will serve as the foundation of your idea. When you research and analyze all the variables that may impact supply or demand start to reveal themselves. For example, take a look at the chart below for the crypto token $FTT. It is a 17-week chart that is different from many altcoins right now.
Historically, an exchange coin has explicitly always held up strong and produced a longer-term profit in digital currency. I always stated a new trader or veteran looking to learn more about markets study three people.
William Gann, Richard Wyckoff, and Jesse Livermore.
These three men produced some of the best content and excelled me into profitability when I started. You can find many resources on core market concepts in our trading room. Gann is the reason behind the 17-week timeframe which helps my more cyclical approach.
Now you have a trading idea and a planned forecast. By the end, you should also have a couple of what-if questions. These questions will lead to the risk and profitability decisions of the trade and act as scenarios.
Understanding Profit and Risk
When it comes to making good trades, there are a few variables to consider. The first is a Risk/Reward ratio. The ratio determines how much profit the idea will net if you are correct in the analysis. I like to hunt for ideas that will earn 3x my return. In easy to remember terms, this means if I dedicate $1,000 to a play, I expect it to make me close to $3,000 on average.
Before I continue any further, trading isn't set and stone. It fluctuates and becomes dynamic. You will not keep a trade open that is in profit by $2500 and say I can't touch the position until it hits my unmovable target. This is silly. No one would do that. For one, you should not have a set target. As stated above, you should have a strong belief based on many variables where you believe the price and market will eventually go. Once it hits that level, we enter a whole new realm. This new realm is what separates the profitability level for most. You may know it as trade management. We have a few articles with tips for managing trades on our blog. I highly recommend you check out the videos and articles there.
Once you have an idea for profit, next is calculating risk based on the worst-case scenarios you forecasted. Liquidity of the position, timeframe, and the factors you predetermined all play a vital role in keeping risk in check. You may have heard of "R." A trader establishes how much money they want to lose or risk on an idea in case it all goes wrong. The amount is called an R. If you won 3R on the $1,000 example above, you would profit $3,000. You can calculate things this way if you like; however, trading is not so rigid. You have to evolve. After a lot of trial and error, a set risk % on every trade will eventually start to come back and bite you. You have to adapt to the strength of an idea. The best way I can describe this to you all is with an example. Oil. Long-time followers know how persistent I have been calling for Oil to go higher. Very rarely will the market gift wrap you such unbelievable market conditions to execute a trade on.
Bonus Market Misconception
Moving Stoploss to Break-Even.
You may have heard it from other trading legends, however, moving a stop to breakeven does not do what you think it does. You should not abandon or alter your trade idea simply because you want to feel safe or think you are locking in a profit. Stay dynamic. Move the invalidation or stop to where you would be wrong.
Our next version of Emporium Chronicles is for premium users. It will detail a comprehensive overview of trading ideas and market updates related to Crypto platforms, Defi, Commodities, Stocks, and more. You will see in full detail how we screen for ideas.
Until next time