Shane Blankenship
Foundations of Trading Part 1: Preserving Your Capital
This is the first in a series of foundational lessons on the principles of trading. These foundational lessons are relevant to any instrument, time frame or methods that you use.
- Preservation of Capital
- Market Structure
- Andrews Median Line Tools
- Trade planning
- Self-Management
We start with money management. Because if you blow through your money you won’t last long as a trader. Money management starts with self-discipline, which is the first thing every trader should begin to foster. Preservation of capital is paramount. If you’re not currently profitable, cut your trading size down; you have to earn the right to size. Always use hard stops, which means, put in a stop order at the same time that you place your entry order. Know your maximum risk per trade, and stick to it. My risk management is 1.6% of my account per trade.
We will talk about Market Structure in the next part of this series.
Understanding the Median Line Setup
A Median Line Setup is a a set of conditions that come together in such a way as to allow you to realize your objective. The thing to remember is that the set-up always serves the objective, not the other way around.
As traders, we tend to lean on setups and turn them into something dead and mechanical. It won’t work, plain and simple; there are too many moving parts. The set will use you, without an understanding of price flow and the attendant conditions. It’s about using your tools, not the other way around.
What Is a Median Line?
In order to trade more effectively we need to have a thorough understanding of our tools. This brings me to the Median Line Set which is a widely misunderstood tool.
A Median Line is the relationship between 3 alternating points. It cannot not, not work. It’s this relationship, between the alternating pivots, that defines the median line. Understanding this relationship yields a deeper understanding of price movement. When you draw a Median Line, follow the movement, not the line.
What a Median Line does, is take the A to B pivot which are extremes and then project price back to the center from the C pivot.