Tuesday, 3 May 2011

They Don't All Really Look the Same in the Dark

Not all pictures or setups look the same.

That being said, we have the ability to define the picture we want to see in order to enter the trade. We then have the ability to specify the trigger for the trade.

These being the case, we are able to properly back test a trading picture and its trigger(s).

If we can do that, why would we not only trade the high win rate ones? Why on earth enter a marginal trade?

Once I enter a trade whose picture has back tested to be 79% win rate on an X target and Y stop, I know that after the trade is triggered, it's up to me to manage that trade to its best possible outcome. Yes, my testing has provided an "average" stop loss and the "best" all out target, but all contexts are not the same and each context will have a real best stop and most profitable target. It's up to me to determine those after I am in the trade. If the stop and target are out of balance, then I either lighten the size or scratch the trade. I do it this way as I don't want to miss a trade or the maths of my day will be out. I may miss the trade of the day.

Because of precise trading picture definitions, which I must have to back test, I am able to use an algo to enter and then manage manually. But the criteria is the same whether I enter manually or by algo. "Just get the trade on and then manage it" is what I was taught. Being inconsistently choosy in trade selection is dangerous to my health. I know because there is a label on my P and L statement that says so.

The DAX did it's thing today. Not the easiest market to trade but with structure and discipline it's doable.

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