Tuesday, 22 November 2011

Kenny Rogers Said It

"You gotta know when to hold'em and know when to fold'em". Like poker, how you go about exiting the trade is one of the secrets of CP and survival.

There are 3 possibilities: You exit at a profit, you exit at break even and you exit at a loss. Of course we all want every trade to go in our favour immediately when we enter it. That is our aim when we enter and see the order flow in the direction of our trade.

However, for that not to happen, all that is required is that more contracts come in to sell than there are on the bid, and the market ticks down. We use range bars in order not to be shaken out of the tree by normal fluctuations but we can increase the odds of the trade going into our favour by our trade location.

If I'm buying, I want to buy at support. What is support? Support is the area (not necessarily an exact price) where buyers have shown their hand and where we expect the buyer to be still waiting to buy. We monitor for the continuing activity of the buyer at that area. We want the buyer to remain unsatisfied and for the buyer and other buyers to auction up the market. We virtually front run the buyer and lean on his bid. If he disappears or is satisfied by sellers, then the price moves down to the next support. Where that support is, is what determines whether we exit the trade or weather the storm or even double down.

As far as exiting at a profit, we look for resistance. How strong a resistance we look for depends upon our trading style and whether we are happy to sit on a profitable trade as the market rotates in the direction of our trade.

Knowing where we want to exit when we enter the trade is an important part of the process, as we are making a determination based upon calculating the amount of possible loss versus our expected profit, taking into account our known win rate on that particular trading picture.

This is what it takes to make money consistently. The ability to make that judgement/calculation in a split second and act on it before the trade is missed. If you haven't done your homework to give you the ability to make the assessment then I don't think you are in the race, never mind winning it.

I had nice trades this morning (London time). You can see them on the chart below. The first, a buy, was my usual pullback trade that I entered as it bounced off the 33 EMA. My target was the thick red line I drew on my chart yesterday, just before RTH started. I had seen activity here and I marked the chart so I could sell yesterday if price came back up there. It didn't and I left the line there to remind me to expect selling today.

As price got there this morning, I initially had orders to exit at the line. When it got near, I could see that momentum was running out and moved my SELL order to take profits plus added a new SELLSHORT order a little below the line. I was happily filled on both. I covered some at 5657ish and the balance at the 99 EMA. The trade made about 62 points per contract or 1,550 Euros, all because I had done my homework. "The harder I work, the luckier I get!"

And then I bought it again.


  1. Mr. EL,

    When you trade using MarketDelta, do you use the "look-inside-the-bar" feature to more closely time your entries and exits? In other words, based on what you see inside the bar, do you sometime enter or exit a trade before the bar closes?

    Thanks for posting your charts.

  2. Hey Tom,

    I think you mentionned you were using a virtual machine (VPS) to host your trading software. Can you tell us how this is working out for you? and if so what provider do you use? Thanks!


  3. I use tradevps.com. Tell Jack I sent you. Working very well. I don't think I'd go back to running anything live locally.