The key principle EVERY trader needs to know

Not following this rule? You could be seriously risking your profits

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Dear Trader

Clink, clink, clink. You're at the top of a rollercoaster. The cart is moving up the last few rungs of the track ... and you're about to plummet over the edge. There's no turning back. Now if you enjoy roller coasters, you could be in for the thrill of your life … But what if you don't? What if this is your first ever rollercoaster, and it's made you realise that you never want to do this again. You can't take back the decision to get on. All you can do is sit back, close your eyes in terror, and wait to drop over the edge ... A bad rollercoaster ride is like a bad trade Except you're not hurtling down a track 50ft up in the air. Instead, you're sitting at your computer, watching in horror as one of your trades is doing the opposite of what you want. Fortunately, there is a way to banish that 'bad rollercoaster' feeling forever. It's my second rule of safe trading … Follow this rule, and not only will you stay safe while trading, you will avoid many stressful trade situations entirely. Avoid 'bad rollercoaster' trades by entering at the breakout Entering at the breakout is an incredibly simple, effective way of managing your risk. If you don't already follow this trading rule, I'm about to show you why you should. But first, let me clarify what I mean by a 'breakout' … Just as it sounds, a breakout is the point at which the stock price 'breaks' through a certain point on a chart. In the methods I teach, that usually means the top or bottom of a flag or consolidation pattern. There are ways you can enter a trade safely without a clear consolidation pattern, but for the purpose of simplicity, let's focus on a flag pattern breakout. In a bullish trade, when you're expecting the stock price to go up, you wait until the price breaks through the top of the consolidation before entering the trade.

The opposite applies in a bearish trade, where you wait for the stock price to break through the lower point. Simple. Why trade breakouts? When many traders spot a promising trade, they enter straight away. While this strategy sometimes pays off, it also carries a much higher risk. If you enter a trade when a consolidation has not yet fully formed, you're committing yourself to the trade before the stock has made a decisive move in the desired direction. If the stock never breaks out from its pattern, you're likely to take a loss and get stuck on that 'bad rollercoaster ride' At best, you have to endure the nail-biting experience of waiting to see what happens - it's like you're stuck at the top of that rollercoaster, not knowing when you're about to finally plummet over the edge. In contrast, when you trade the breakout: You will avoid losses from consolidations that never break out When you do enter a trade, there's a higher-probability that it will be a good trade because the price has already moved in the desired direction Of course, after entering the stock price can still change direction and trigger your stop loss. No trader can avoid losing trades entirely. But this is one of the best ways you can keep your losses to an absolute minimum. Breakouts made easy Fortunately, trading breakouts is incredibly simple. I teach my students to calculate and set their entry points based on specific rules. When these price points are reached and the stock breaks out, the trade is entered automatically. There's no screen watching or trying to 'time' the perfect entry point. You don't even need to be trading during market hours to use this method. So there you have it, that's my second essential rule for staying safe when you trade. Remember that safer trades will give you greater stability and your long-term profits. Bye for now Guy

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