equity leverage stop loss take profit lot size Above are the basic variables one works with, with any disciplined approach to speculation. The idea behind trendfollowing, is to magnify returns over time by capturing price progression directionally over a longer timeframe then a day. Now with a undisciplined approach, its pretty easy to blow any amount of money given to you. Even when you have significant ratio of winners, when the absolute amount lost on the losers is greater then the absolute amount on the winners. The first thing we see when we speculate is the amount of capital at hand, ie equity. Next we have to 'screen' the markets the look for markets that are trending or ranging. The definition of trend we will use is, progressive price progression over weeks to months. Its as simple as screening a book of charts, and looking for linearity. Low volatility linearity seems better then high volatility linearity. Noone knows where trends will end or when trends will start. It seems prudent to avoid highly hyped derivatives, since there is more 'gaming' going on. The markets that noone talks about, seem to be the ideal. So far: 1) Equity 2) Markets with linearity high volatility, low volatility. The other thing to look for in a market is looking for a range breakout. The idea is that if a market breaksout of a range in a definitive manner, it will trend. Why is this better then looking for markets that are already trending? Trending markets might have a higher probability of a reversal then markets that just have broken out of range. 3) Markets with range breakouts. So now we have capital and we have screened a book of commodity charts to identify the above two types of markets(range breakouts, trending). One can apply this to even individual stocks. Ok now we have screened the markets, and have possible candidates for investing our capital. The other aspect is also look for significant emotional events, according to chart patterns, exponential spikes on the daily chart or drops. Peaks and valleys. Why these? After one of these events, the trends established persist. After a peak and minimal drop consolidation phase usually persists. After a drop and minimal rise, consolidation phase persists. These consolidation phases appear as ranges on the chart. When macro economic shifts happen, these consolidation phases either breakout on a counter trend or trend with the previous trend that was established. The whole point of this mental exercise is to go through what speculators do and refine the process. To a minimal extant we have covered: Market Screening. We do this so that we increase the probabilities that our trades go in our favor. And they go in our favor over time ie the trend. Next we will cover how much to risk per trade.