Figure 1

At this point, you're probably wondering what any of this has to do with the title of the article. Let me explain through a trade I took that we found in the XLT. This was a trade in the Gold market (GC). Notice the supply level and demand level on the chart, both shaded in yellow. The supply level is the origin of a strong decline in price and the demand level is the origin of the strong rally in price seen on the chart. The trade was to bet on a downside move, selling short at the supply level for a move in price down to the demand level. To measure risk / reward, we need to do two things. First, we need to compare the distance from entry to protective stop against the distance from entry to profit target (the demand level). This opportunity offered a little more than 3:1 according to the chart. Second, we have to adjust position size to make sure we are never risking more than we are willing to lose. If I stopped writing about this trade here, most reading this would think to sell short at the supply level like I did and take profits at the demand level. This last part on profit taking is something I never do and that is the most important edge-building consistency tool from this article. Two things specifically:

1. If you are looking for trading opportunities that offer you 3:1, make sure the chart is offering you at least 4:1. If you want a 4:1 setup with a much easier time of attaining consistent profitable trades, make sure the chart is offering you at least 5:1 and so on... I think you get the point. When the chart offers you 3:1, actually getting 2:1 is much easier than if that opportunity offered 2:1 on the chart.
2. When taking profits at demand from a short position, don't wait for price to come all the way down to demand to take profit, make sure you take your profit with your buy order just before demand. The reason is that there is competition to buy at demand; that's why it's demand. When we are taking profits on a short position, we are buying so why would we want to buy at a price level where there is competition to buy? Why not buy when there is competition to sell which is right before the demand level, as price is falling? The same but opposite holds true for exiting longs just before supply levels.

Consistent profits for a trader are much easier to attain if you take profits at 4:1 when the chart is offering you 5:1. They are also much easier to attain when you exit positions for profits right before demand levels for shorts and supply levels for longs. One other side note on this trade that also helps me with consistency are limit orders. I circled them on the lower right portion of the chart for your review. In doing this, you are removing the biggest risk to trading which is us and our emotions. My hope is that this little nugget of information helps you achieve the consistency you're looking for.