Space

Space is simply the profit margin of a trade. It is the distance between our entry point and profit target. Space determines our risk reward ratio. Before entering a trade we need to ensure there is enough space for the trade to move. I think many traders ignore this aspect.

In fact this is one of the most important things to consider when entering a trade. Price takes the path of least resistance. Most of the time the First Trouble Area will give some opposing order flow and cause the price to stall. I have written a post on how to deal with FTA earlier ( Read)

Most of the time the space between entry and FTA will not give us a favorable RR, Price may bounce back from FTA forcing us to exit or it may break through it. We will never know for sure. Exiting all the trades at FTA is not a solution as we cannot let our winners run.

Identifying the right location and patterns to trade is only a part of the game plan. Managing the trade is the next challenge .There is no option other than depend on our “Feel” and “Read” of the markets. This makes trading difficult.

Mechanically trading the three patterns at Decision Points will give us a substantial edge for sure. But the real breakthrough will come only when we achieve expertise in managing the trades. It may take much more time than we think.