How do you catch falling knives?

Wait this they hit the floor!

Seriously, there is a system floating around called the "snap back" system that is supposed to have rules for this. However, smart traders try to jump on falling knives instead of catching them.
 
Why put yourself through all the stress of trying to catch a falling knife?

Reversal trade models are VERY low probability... I've back-tested the hell out of it trying to find a profitable way to trade counter-trend.

I know 1 or 2 traders who can profitably trade reversals, but they have 30+ years of experience and didn't start trading reversals until 20+ years of experience.

I ONLY trade with Momentum... let the trend be your friend (even if it's a small one).

When I got this, my win ratio went from 37% to over 55%. With my risk structure, that put me from breakeven to very profitable...

Good luck!

CD
 
Sounding a bit self destructive. I guess if you have yet one trade to do what would it be. The root of this posting is "Trading for a Living". How's about buy it just above the 1 StdDev set a stop just below and move on to the next trade. buy/sell repeat.

Only way to succeed is don't get caught thinking it can't go down or it can't keep going up.

Respectfully...greg
 
Well, what's the hurry ? The markets are going to be here for a long time ! Best way to deal with falling knives is - Let them hit the ground, unaided. Then, pick them up gingerly !
 
"Reversal trade models are VERY low probability... I've back-tested the hell out of it trying to find a profitable way to trade counter-trend. "

Uff, what can I say, either there is something wrong with your test model or alternatively you test space is too limited - or the definition of reversal trading is blurry. Done right reversal mode trading has a very good probability and sound edge. With reversal trading I mean catching knives in pull backs of 3-20 % and entering only in the direction of larger trend without violating larger trend. Trading reversals when larger trend is violated is simply fool's game.
 
Determine how is the knife behaving in relation to its sector and index.

Then use some logic and determine how many trends you would be fading if you tried to catch it.
 
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