The Structure of a Trade - DAY 1

Every trademusthave three aspects to it. These three aspects, or steps,
comprise the structure of a trade. Structure in trading is necessary because
it decreases the odds of random or emotional decisions and it brings vital
organization to your trading. The three steps are:
1.Setup,which consists of a high probability repetitive pattern.
2.Trigger,which confirms or puts into motion a setup.
3.Follow-through,which is the method used to minimize losses and, most
important of all, to maximize profits.
Now let’s define each of these more specifically.

STEP 1: DETERMINE A SETUP
As noted above, a setup (S) is a pattern that has shown a strong tendency
to repeat over time. There are literally thousands of setups, but few are
reliable or accurate.
The following are examples of setups:

Chart patterns such as gaps, pennants, head-and-shoulders, support,
resistance, flags, trend lines, reversals, key reversals, island tops, and
bottoms

Formations such as Gann, Elliott, Fibonacci, regression line analysis

Cycles, seasonals, ratios, anniversary dates
The first setups I will teach you are based on seasonal key dates. This
method is highly reliable and constitutes one of the most effective approaches that I know of to futures and stock trading. Table 1.1 is an example
of a key date seasonal setup.
As you can see, this setup or pattern has avery specificset of rules. It
is totally objective. It is not a matter of opinion, a theory, or an assumption.
It is an exact statement of history. The vast majority of traders use market
entry and exit methods that have never been tested. They have no idea of
how often their methods have been correct. They believe what they have
read in a book or heard from another trader.This is where and how the
methods that I teach you differ dramatically from what you may now be
using or what you may have heard elsewhere

STEP 2: USE A TRIGGER FOR EVERY SETUP
Thetriggeris a method used to confirm or validate a setup. The methods
you will learn in this course require asetupand a trigger for every trade.
There are no exceptions to this rule!
Triggers are similar to what most traders call timing indicators. The
triggers I teach you are very simple and very specific. Remember, it is
the combination of setup and trigger that places you way ahead of most
traders.
In future lessons, you will learn specific combinations of setups and
triggers that work well together.

STEP 3: EVERY SETUP AND TRIGGER COMBINATION MUST HAVE A FOLLOW-THROUGH METHOD

The follow-through method is designed to:

Manage and/or limit the risk

Maximize profits
Without both elements, you will likely be like most traders—you will
have many small victories that will be more than neutralized by a number
of large losses. Unless you are able to bank large profits, you will never
succeed at this game.
In future lessons, you will learn specific follow-through methods designed to limit losses and maximize profits.

REVIEW
In this lesson, you learned the basic structure of each trade. The structure
of every trade consists of three elements:
1.Setup
2.Trigger
3.Follow-through
Some specific examples were given.
Please take a few minutes to answer the questions below.