Systems, Strategies & Resources for Trading Futures

[SE]

Another set of thoughts....

In thinking about trading, you need to be correct a number of times when making a trade. If you are not correct at any of the first three, you will lose on the individual trade.

1. Market Direction.
2. Market Timing. Entry.
3. Stop Positioning.
4. Market Timing. Exit and/or Stop Movement.

1. If you are wrong about direction, you lose.

2. If you are right about direction, but mistaken about timing, you lose.

3. If you are right about direction, but incorrect about positioning (by as little as one tick) you lose. This is why tight stops are problematic at best. We have already discussed this (see prior post).

4. You can be right about timing, direction and stop placement and still come out with little to show for it.

Answers:

1. Good entry system that you know and trust. You must find indicators or patterns that speak to you and develop and use them.

2. Again, a good entry system is necessary to guard against bad timing. Problem is even a good entry system will not protect against the occassionaly spike type move that happens. If that happens after your entry, you have bad timing....or rather bad luck on that trade.

3. This is probably the most problmatic area for traders I think. The deal is you need to set stops that are market relational and also just beyond the zone of price that would cause a change in signal. In other words, if you are working off a moving average and a STO for a signal system and the price moves 6 points against you, the question is did that price movement change the signal system from long to short or from short to long? If the answer is yes, you need to be out and you are in the stop zone. If the answer is no, you need to stick with the trade as the signal system has not told you the market has reversed.

4. The exit is also problematic. I think a lot of times it comes down to wishes and hopes. I always want to let it run. I don't want to take +4 when I can get +10 and so on.

However, leave a lot of +4s on the table and you won't seem to end up with a lot to show for correct trades. However, it seems that invariably when you do exit and take the profit, the counter-trade moves fails and you are left at the station.

-SE