Tuesday, 16 November 2010

Double, Double, Toil and Trouble

I came into the PPI number short the Euro today. I exited my position with a profit. How can that be when the market popped (up) on the number? Doubling Down!

But let me qualify that- Doubling down as part of a trading plan.

I made the decision some time ago to trade through most numbers, unless I judge the number to be of such potential significance that being on the wrong side of it would be a career decision.

I was short at 1.3622. I had the opportunity to take a tick or so right before the number. I didn't. The number was bullish at first and there was a pop up to about 1.3635 which was just under my fav, the one and only fib number. The market ran out of buyers there and I managed to sell some to the last stragglers who were caught long, doubling down.  I covered my shorts at the other fib extension at 1.3609, for a nice profit.

I had a definite area where I knew I was wrong - above the upper fib extension, but I played on the fact that if there is volatility after a number then you get some wild two way swings and I can usually cover if my average price, after doubling down, is good enough.

This way, I am buying a one way bet on the number. If the number had been bearish then my position would have gone into profit and I had orders to scale out on the dive.

Caveat: This is not to be done as an impulse, but only as part of a calculated and thought out trading plan. I calculated exactly what I had to do before the number. I could have no surprises. I was prepared for all eventualities and executed my plan.

There are lots of numbers out every week. They can be disruptive to your trading if you let them. My attitude to stops has changed completely from the early days of trading. I started developing my stop tactics down on the floor and refined them ever since.

Using stop losses can empty your account. Not using stop losses will empty your account. Using them intelligently can greatly increase the bottom line at the end of the month.

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