Quote from kinggyppo:
first rule enter with a half position so if wrong you lose small. if you trade 100 shares enter with 50 and see if the mkt proves you correct. In a classic trend system you would add a total of 4 units into the trend. Its hard to find this stated anywhere but the idea is to add into a winning trend, hard to do. if you could identify a trend day early you would exit at the end of the day with 4 units. Go back and cherry pick a trend day and imagine where the best adds would be, try it with small size the next time you see a big move. By the way the system is not laid out in the book.
Thanks kinggyppo, you seem to address rule 2 pretty clearly, but I am primarily concerned with understanding rule 1 right now.
Quote from EON Kid:
Betting Rules by Phantom of the Pits
http://www.wisetrader1.com/?page_id=19
Basically, PoP says in rule 1 that we are not to let the market prove us wrong, but rather it must prove us right, or we get out ourselves. I have not read the whole book yet so perhaps I will get to it later, but the problem here is it's very vague as to what is "right" and "wrong."
There are three primary metrics (and probably other derivatives) I can see to be proven right or wrong in a trade: price, time, and possibly volume.
1) If price moves beyond price X, I am "right" and will stay in the trade, and consider to add. However, if it moves to price Y, I am wrong, and will exit the trade (stop loss).
2) If I am in the trade for more than T minutes, yet price is not beyond price X, then I will close the trade, even if price Y was not reached.
3) If the volume is below some certain volume V in a given time or range since entering the trade, close early, but again, only if price X has not been reached.
In all three cases, IMO, price must validate the trade. That's what a trade is anyway, right? Buying and selling based on the traded price. So I am ONLY proven right by price, but I may consider that I'm wrong by price, time, or possibly some other metric like volume. If you disagree with this please let me know why; the logical seems pretty sound to me but perhaps I'm missing something.
As an example: I briefly considered closing the trade that I took around 1:10, the 76.75 long, after it stayed there for a half hour. But the market still had not traded below 76.25 during the later part of that range, so why should I exit? There are times when I will fade a down move, for example, and on the retrace up in my favor I notice the volume lowering, and after about 3 minutes I realize that I better exit now, because this is only a pullback good for a point or so. So, the market has not traded to my stop, but I would expect that if it goes back to my entry that it will drop further. This is a time when using a time-based stop makes sense IMO.
There are different ways to view the market and I find value in different paradigms. Volume, that is, transactions, actually cause the market to exist and for price change to be possible. Time does not. However, time is inextricably linked to the markets as well, inasmuch that we as humans are ruled by and live in the context of time. When the market price changes by 4 points in 1 minute, we perceive this as different as when it changes by 4 points in 1 hour, and volume is not a factor in how much the market moves; perhaps it was more over the hour cumulatively, but we notice the changes in time.
Sorry for the rambling, just looking to expand my understanding of the market as well as Phantom's Rule 1. I will probably post this on another forum as well so forgive my double posting, as I seek to get more feedback on this.
