Thursday, 14 January 2010

Inside Out or Outside In.

All the trades on the blog are what I call "inside out" trades - initiating trades rather than responsive trades. The reason, as I have said, is that these trades are easier to define and recognise. Also, they are extremely high percentage trades for me as you have seen.

The "outside in" trades are the trades that pick the tops and bottoms of swings. When you get them right, you have an exquisite trade location. The big ask is getting them right a high percentage of the time. To make it more difficult, bottoms look different to tops. For me, tops are much easier to identify than bottoms and the rewards come much more quickly, usually.

Its usually easier to wait until the top or bottom is in place. You then have an inside out trade. Most traders who trade responsively have all sorts of ways of trying to reduce their risk in picking these tops and bottoms. They do things like scaling in, stop themselves out and re-entering, doubling up on  a loser and many others, none of which really appeals to me.

My approach is to trade specific "outside in trades", ones that have a definite setup. If the top or bottom doesn't fit then I don't trade them. My win rate on these is less than my win rate on the "inside out trades" but, the average profit per trade is higher so they are worth doing, but not without a lot of experience. Kiki is trading only the inside out trades. We'll try and automate the "outside in" ones and see what happens.

Chart below is what was called the German Bund (GB), now the Bund. It trades very large volume and is one of the three interest rate futures traded on Eurex.

No comments:

Post a Comment