Friday, 19 August 2011

Rock, Paper and Scissors

Force other players to react! 

I saw an interesting article, at least to me, about how to win playing Rock, Paper, Scissors that made me see a direct relevance to trading. Actually, I often see things in life that have a parallel in trading.

Anyway, the article spoke about "forcing" your opponent to make or avoid specific moves so that you could be ready for them and take the appropriate action.

That is what is happening in the markets, especially now.

A perfect example of this is my fav Fib trade. Here's one I did today. It's the only Fib trade I have any interest in because it's the only one that makes sense. Traders put their stop losses in the wrong places. When the market is in an uptrend, putting a stop just below the most recent swing low is giving a present to people like me. When the market is in a down trend, putting a stop just above the most recent swing high is also a gift.

Price just skids past the swing point (1.272 fib), only to reverse. It pops there because that's where there are stops. Traders who are trading the real trend are waiting for the opportunity to "supply liquidity" and pounce on your stop. Now when you do this in line with the trend, the trade is perfect.

Correct stops are those that make market sense, not just monetary sense or just randomly picking something. Exits, whether taking profits or taking a loss, need to have as much thought put into them as entries- perhaps more.

A little Black Gold. One of my mentored students trades this market. I had switched him to the Euro for a week buy he's back to CL again. And it's a great market if you can get onto the trend early.


  1. For your Inside Out trades, where is the stop location that makes Market Sense?

  2. I look for a change in the trend = bigCCI and RMAs - but need to take into account how far my entry is from the EMAs - closer entries are safer and can have smaller stops. Also, when I enter a trade as a continuation trade, my stops are tighter as the trend could be over. I position size my trades according to hoe big my stop will be to maintain equal risk profile.