Entrance and Exits
- Thread starter aphexcoil
- Start date
I'd like to amplify on Magna's point some more.
One way to look at the situation is that a trader's mental or numerical model of future price action resides in a two dimensional space.
<b>The first dimension is the expected future of movement</b> This dimension reflects whether the trader expects the price to move upward, remain unchanged, or move downward (and by how much). After a trader puts on a position, they will monitor the price action and update their opinion of likely future behavior (either mathematically or mentally). If the trader is long, then they would exit when the future expected price movement is no longer upward. As Magna say, this does not mean that the trader expects the price to move downward, only that it is not expected to move upward anymore.
<b>The second dimension is the risk or uncertainty of movement</b> This dimension reflects whether the trader is uncertain of future movement. Although a trader might still believe that the future price action is biased positive, they might exit a long position if perceived uncertainty of that continued upward price movement is too high. So high uncertainty can drive traders to the exit of both long and short positions -- keeping the trader on the sideline until another "pocket of clarity" occurs.
<b>The bottom line</b> There is a deadband between being long and being short that is filled with the situation where the trader either expects little movement or expects very high uncertainty of movement. This is the source of the admonition to avoid overtrading -- sometimes the market just isn't offering a good trade with adequate risk-reward. Sometimes cash is the most profitable position.
<b>Trading Multiple Markets</b> If you trade multiple markets, the situation can be even more interesting. With multiple markets, the goal is to find the best trades that exceed some minimum required threshold for high gain at low risk. In some cases a trader might exit a good trade (with a good expectation for further price improvement) to free up capital for a better trade. In trading multiple markets, the trader is less likely to be sitting in cash, because there is often at least one market that is doing something profitable.
Of course, if you trade options, then things are even more interesting (a third dimension of uncertainty of uncertainty), but that's getting too far off the original point of this thread.
Happy trading,
Traden4Alpha
One way to look at the situation is that a trader's mental or numerical model of future price action resides in a two dimensional space.
<b>The first dimension is the expected future of movement</b> This dimension reflects whether the trader expects the price to move upward, remain unchanged, or move downward (and by how much). After a trader puts on a position, they will monitor the price action and update their opinion of likely future behavior (either mathematically or mentally). If the trader is long, then they would exit when the future expected price movement is no longer upward. As Magna say, this does not mean that the trader expects the price to move downward, only that it is not expected to move upward anymore.
<b>The second dimension is the risk or uncertainty of movement</b> This dimension reflects whether the trader is uncertain of future movement. Although a trader might still believe that the future price action is biased positive, they might exit a long position if perceived uncertainty of that continued upward price movement is too high. So high uncertainty can drive traders to the exit of both long and short positions -- keeping the trader on the sideline until another "pocket of clarity" occurs.
<b>The bottom line</b> There is a deadband between being long and being short that is filled with the situation where the trader either expects little movement or expects very high uncertainty of movement. This is the source of the admonition to avoid overtrading -- sometimes the market just isn't offering a good trade with adequate risk-reward. Sometimes cash is the most profitable position.
<b>Trading Multiple Markets</b> If you trade multiple markets, the situation can be even more interesting. With multiple markets, the goal is to find the best trades that exceed some minimum required threshold for high gain at low risk. In some cases a trader might exit a good trade (with a good expectation for further price improvement) to free up capital for a better trade. In trading multiple markets, the trader is less likely to be sitting in cash, because there is often at least one market that is doing something profitable.
Of course, if you trade options, then things are even more interesting (a third dimension of uncertainty of uncertainty), but that's getting too far off the original point of this thread.
Happy trading,
Traden4Alpha
I think it really comes down to probabilities and risk / money management.
When we enter a trade we NEED high probability. When we exit, we do so when the probabilities of the market continuing to go in our direction has weakened, not when the probabilities are as high as when we would like to enter. This is all for the sake of proper money management, and risk management.
When we enter a trade we NEED high probability. When we exit, we do so when the probabilities of the market continuing to go in our direction has weakened, not when the probabilities are as high as when we would like to enter. This is all for the sake of proper money management, and risk management.
Magna,
I'm sure the real world scenerio will be slightly different, but I have been trading with a simulated account for a little while and the brokerage firm assured me that it was an accurate representation of real-world trading. So, if my performance is any worse or better, it is due to the mental aspects of having real money in the market.
I will be starting the journal as soon as I have assured myself that I am confident enough to venture into the futures market with a sound system that works and is robust. I'd rather err on the side of time and take a little longer before I dive into this game.
aphie
I'm sure the real world scenerio will be slightly different, but I have been trading with a simulated account for a little while and the brokerage firm assured me that it was an accurate representation of real-world trading. So, if my performance is any worse or better, it is due to the mental aspects of having real money in the market.
I will be starting the journal as soon as I have assured myself that I am confident enough to venture into the futures market with a sound system that works and is robust. I'd rather err on the side of time and take a little longer before I dive into this game.
aphie
Magna
Administrator
As I used a simulator for a few months before live trading I can assure you that the real world scenario will be a lot different, not just "slightly".
Hahahaha. Yeah, right, who could ever doubt a brokerage firm's assurance?
Exactimundo. Aside from slippage that's the whole point. Real money introduces "mental aspects" that one can't begin to fathom while papertrading.
Whenever you feel comfortable, the timing doesn't matter to me. You keep bringing it up in your posts so I thought I'd ask.
magna is right on. Slippage and fills being important....but what most paper traders never take into account is the different psychology of the trade when it is for REAL.
Not to say the system is not going to work......but be prepared for is to be more than SLIGHTLY different.
Good Luck.
Not to say the system is not going to work......but be prepared for is to be more than SLIGHTLY different.
Good Luck.
Good advice here by others. ....
The important point is that every trade you take on - in real world trading - should have a known exit. That is you should know your exit prior to entering into the position. Once you are in a position you can modify the exit if things are favorable: that is you can modify your profit to a greater number if it is safe to do so. However you should always know in advance which signal means your position needs to be closed out.
The easiest way to end your trading career is to not have a plan in advance of taking on a position, to not modify your exit if things are going well in your favor, or to not stick to a pre-determined stop loss point.
The important point is that every trade you take on - in real world trading - should have a known exit. That is you should know your exit prior to entering into the position. Once you are in a position you can modify the exit if things are favorable: that is you can modify your profit to a greater number if it is safe to do so. However you should always know in advance which signal means your position needs to be closed out.
The easiest way to end your trading career is to not have a plan in advance of taking on a position, to not modify your exit if things are going well in your favor, or to not stick to a pre-determined stop loss point.
Most people take their profits too early. The big money is when they run and run. If you are prone to taking them too early then try and force yourself away from your trade.
Try this...the trades getting near your profit target...your getting nervous...calculate where you would put your stop and then make it a trailing stop and walk away.
Doesn't work so well if your scalping for cents but its excellent for swing trading,now and again you may find yourself on the right side of a big move.
Try this...the trades getting near your profit target...your getting nervous...calculate where you would put your stop and then make it a trailing stop and walk away.
Doesn't work so well if your scalping for cents but its excellent for swing trading,now and again you may find yourself on the right side of a big move.
Good question started the thread, and great answers are given. I would side with Magna and Traden4Alpha, with one addition. There is one more factor you need to add: readability within your system. Action can become such that your system won't be able to read it anymore, not for futher holding of your position, nor for reversal. Probabailities in the markets exist not only by themselves but also within certain systems and timeframes. If my system tells me to close my position on price/volume spike, I do so. This does not necessary mean that price should reverse at this point, it just means that MY way to read the movement exhausted itself here - and I do not trade what I can't read.
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