Wednesday, 17 February 2010

When Do you Cut a Trade

I have long believed that an important part of trading is the exit. It's the exit that determines whether you close the position at a loss or a profit and how much of a profit.

You put the trade on and manage it. But how?

The obvious exits are when the momentum and order flow result in a complete reversal. You don't need to work that one out. You're the first to know. But what about a trade like the Gap Fill trade today on the ES? I was a bit early on the entry at Trade 1 and cut it at the 33EMA. The 6CCI told me that there would be a pullback and I took the hint.

Trade 2 was a better entry because the CVD was red. I still wasn't too happy with the 45CCI running horizontal positive but took the trade because I saw 2 points for my first scale. Scale I did. I cut the balance at the first green VB as it looked like "they" had decided that close enough was good enough and the risk/reward had now changed. The ES had been grinding higher all the London morning and although I expected that to continue to test the area just above 1100.00 I also believed that the Gap Trade would be in play and hoped it would bring in enough day trade profit takers to make a good profit.

After that trade, i couldn't go long until the resistance issue was resolved so I waited, and waited and waited. The sun was shining in London and I was looking out the window at the trees in the park opposite my house.

Patience, patience and then there was the divergence trade - Trade 3. By now, the CVD was useless because of all the sideways action but the nice peak in the 6CCI and a rejection of resistance above with the red VB put me into the trade. This was all in and all out at a couple of ticks above yesterday's high. It seemed that everyone was watching the same movie so I had to pay up 2 ticks to exit and finish the day. The Footprint Volume Profile paid for itself today.

I have been reading some of the stuff that the "gurus" are writing and it seems that their selling point is to help their customers make 4 ES points a day. In today's market that is not a big ask. The problem is those darn losing trades that get in the way. I asked Kiki whether she thought that 4 points was hard. Her answer was very interesting. She said "all you have to do is tighten up a bit and only take the trades when EVERYTHING lines up, take your 2 points and run. Then do it again during the day." This is the focus of Kiki's FloBot - the surest trades.  We've got two years of data on several different markets and there is alot of testing going on, so FloBot update at a later time

This all goes to reinforce my battle cry for CP traders in the making: Trade 1 market from one chart using only 1 setup.

Trade well everyone. Making money is the best revenge.


  1. What helped keep you out of the chop, notice that there were no inside out trades. Was this the flat EMA?

  2. Tom,
    I am one of those whome you address "trade one market and one setup". After 2,5 years of trials and errors, I have come to the conclusion that for me that's the only way it could work. It is pretty obvious if you work full time and trade in the evenings: how much energy and focus do you have left for trading?
    What you do not mention is, if you have a plan and trade your methodology (or another methodology of 75% winning rate), we as ongoing CP traders have to know our pain threshold!!! Are you psychologically able to take 5 losing trades in a row and going into the 6th trade making the decision alone (no mentor on your side) and being objectivelly as going into your 1st trade?!

    Let's assume I am trading your methodology with real money $324 loss per trade in ES (after 3 months in SIM and with a trading plan).
    I know how it feels for me trading a methodology of 75% winning rate with a stop loss of 305 per trade. It happens very rarely (statistically) that you encounter 5 losing trades in a row. But it happened to me in 2008. Did I take the 6th trade being down $1.515? NO. It took me ca. 6 months to go over the trades...

    You are right, Tom: trading is simple, but for newbies it is not easy. It is not even easy for newbies with a mentor on their side most of their trading.

    Thanks for your efforts!

  3. Hi Tom and Kiki,

    Tom with out having to go
    in to specifics, (if you did, I would not complain, jk) if you could only trade one set up what would it be, pull back to EMA?

    Kiki how long was it until you started playing the ES open? Most of the time on a gap it would not fall under a inside out trade right, or would you only play it if it did?



  4. Tom,

    when you cut the first trade, how was the CCI behaving that you started thinking that there would be another pullback before the expected move?

    For me, in retrospect, CCI 6 peaked above 100 and went down, the 45 CCI was positive.


  5. Anon 16:48, when the emas are horizontal.
    Rocky, yes, definitely with th 45 CCI on the correct side of zero.
    timokrates, the 6CCI plus both EMAs were green and it bounced - typical 33ema support working.