Monday, September 13, 2010

Capture the Majority of a Move ??

Trader Quest How do I stay in a trade long enough to capture the majority of a move?

Plot Course ~ In order to think about this, I'd like to break the trade into two separate components. First, the reason for the entry. Second, when considering maximizing the outcome, you need to have a methodology to monitor the trade for continuation. Where many traders get caught is they trade to force the reason for the trade to give them indications to stay with the trade.

Ride Wave ~ Once the trade is placed, as far as I am concerned, the reason is gone. No one else is using your particular reason so its immaterial. Therefore, now you have a trade on with a directional bias, neutral and time decay option strategies are not included in this conversation. Your focus needs to shift to "What are the criteria that I need to see that will give me the probability for the next period of time that the trade will continue in the direction of my trade?" One real life example is using a one minute bar chart for a short trade. As long as the high for the bar in which you placed the trade is not exceeded in the following minute, you can allow your trade to continue for one more minute, and so on. A lot of times when a market spikes up to an excess or there is a big sweep, the market suddenely retreats. These events instantly cause fear and greed and uncertainty. If you already have your monitoring decided upon, you may be able to ride these moves profitably or even exit them quickly for a loss if the move is against you.

~ Keep Curious, Coach Mark

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