Thursday, 3 September 2015

Context-Trader, Doubling Down and CP

In a post yesterday, I was asked about Context-Trader and doubling down.

Context-Trader is an add-in I had programmed that takes the different components of the context I use and puts that into buttons that you see in the chart. I can use many different combinations of those buttons, much like someone playing a piano, to meet the conditions I have in my trading plan for a trade. I can activate these buttons well BEFORE the trade is due to be triggered. That is to say, I see the context setting up and I arm the buttons to monitor that context so that when ALL the conditions are met, a trade is triggered. My trading charts are 1 MP chart and 1 bar chart with indicators that help define the context. When the context for one of my trading plan's trading pictures is setting up, I arm the appropriate buttons that will trigger the trade INSTANTLY at the moment that all my conditions have been met.

This is a manual discretionary process although by using the buttons I prevent myself from being able to take most non trading plan trades.

The platform runs on a VPS so the latency is only about 1ms. So I'm sitting on my mountain in France and I'm not impacted by the distance I am from the exchange. I also have something that reinforces my discipline and helps me keep to my trading plan. All of these things help keep me consistent.

I believe that this way of trading is a quantum change in discretionary trading. The win rate can be consistently as close to 100% as it was when I was a floor trader. While win rate is only part of what I need for CP, I know that it is very difficult to put on a trade unless you have one. Once I have a high win rate, all I have to do is manage the math and make sure my losers lose less than I make - trade management.

That's how we come to doubling down.

Expecting to consistently have a perfect trade location is a fool's errand. If a trade goes against me then I have two choices: stop myself out or find the correct spot to double down and improve my average entry price. The first choice means I lose money on a trade that could still be a good trade. The second choice allows me to stay in the trade and exit at either break even or at a profit.

Not all trades are suitable for doubling down. However, most of my trading pictures are trades that are suitable for doubling down.

I would not day trade without being able to double down. That's how important it is to my trade management.

The chart below has two real money trades that I did specially to show the power and confidence of doubling down. Both were exited at break even.

We now have the right technology that can get many many more traders to CP. Whether its MarketDelta, or NinjaTrader - I use all three with programmed buttons - a discretionary trader can become CP much more easily using it. The learning curve has flattened.

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