Tuesday, 15 November 2011

Timing and Stops

Trading is about timing. When I put a trade on I am trying to catch that optimum point where I can be "sure" that the market will immediately go in the direction of my trade.

That's a really big ask! If that was my expectation (and it is NOT) then I would be expecting to divine future market direction and the exact moment when the price would move in that direction on a basis that it would depart from my entry and continue towards my target without coming back through my entry price. As I said, a big ask.

I think of trading like driving a really powerful sports car on ice with summer tyres. Lots of wheel spins and slides before I get traction to go in the direction I want to go. In the mean time, I don't want to hit anything that wipes me out and stops me from getting to my destination. But I do want fences around me to stop me from going over the edge of the cliff.

But where to put the fences? Without fences, blowing out an account is in sight. Fences too close and the fences are the cause of the crash.

My solution is to stay in a trade until I know it's wrong. OK, what does that mean? Well, if I'm taking a trade with the trend, I'll stay in the trade until the trend changes. If I'm trading against the trend - Outside In - I'll stay in the trend until I get a pullback against the trend and I see that the trend is resuming. I wrap all that in a drop dead stop, so I don't make a career decision on one trade.

The Euro futures trades this morning were all in the direction of the trend. Down! At no point during those trades - see the screenshot - did the trend look like it was over. I didn't cut any of them at a loss. Should I have? Do you? Taking unnecessary losses is one of the causes of not succeeding, both discretionary and algo. Like the guy on the island said: It's the Plan, it's the plan.

No comments:

Post a Comment