Jack Hershey "WASH" technique
- Thread starter Chicken Little
- Start date
StreamlineTrade
Guest
I don't think there is any need for these kind of remarks in what should be an informal yet professional discussion.
What you appear to have done is made an assumption on using limit orders, and then furthering your own case from a biased standpoint. As others are now pointing out, there are other ways of doing things to those you may or may not be familiar with.
By the way, yes I have WATCHED a futures market in real time. Stocks too! I have also been known to place a trade now and then. Lucky me. This is why I say what I say. How about you?
All the best.
based on your expectancy to wash a trade...ie to get out even.....why not incorporate a scale out strategy. Out of 100 entries, how far in your direction does the average wash entry go before pulling back....use that value to scale out 1 cont. and wash the other...this way you actually lock in profits. You can wash both cont. if the move does'nt reach the ave. tgt. and get out with a loss of commish. Incorporating multiple exit strategies will yield higher profits longer term.
I'm not a fan of scaling in and out. I'm more pragmatic and confident: I form an opinion, I develop a plan, I size based on my risk tolerance, and execute. When I form another opinion, I trade that. This way when I'm right I'm payed for it, when I'm wrong I pay for it. This works better for me than scaling in and out (fading), which is friendly to fuzzier entry / exit systems.
Van Tharp was initially against fading and nicely explained why, then recently he relaxed his opinions and now accepts some fading. As almost every guru he tends to overemphasize the importance of the concepts he loves, i.e. money management.
In my opinion money management is important, but it is just a tool that has to be customized and incorporated in your trading system.
By the way. I made an effort to follow your post because of your orthography.
Van Tharp was initially against fading and nicely explained why, then recently he relaxed his opinions and now accepts some fading. As almost every guru he tends to overemphasize the importance of the concepts he loves, i.e. money management.
In my opinion money management is important, but it is just a tool that has to be customized and incorporated in your trading system.
By the way. I made an effort to follow your post because of your orthography.
Wash trades are a psychological issue. Everyone defines their own risk parameters and personal pain thresholds from their prior experiences in the market.
Case 1: Say you make an entry and it starts losing from the get go. Your risk is 3 points, i.e. you exit at a 3 point loss no matter what. The trade starts oscillating in the -1 to -2 point range and starts slowly testing the -2.5 range. The probability of the trade hitting the 3 pt stop is increasing the more time the price spends away from your entry. This is an ideal trade in which to attempt to wash or take a 2 pt or 1pt loss rather than the 3 pt loss.
Case 2: Now suppose you make an entry and it moves in your favor right away and oscillates in the +1 to +2 point range. Guess what, the same idea as above is now true... the probability of your trade moving more in your direction is increasing as the prices spends more time above you entry (in your favor). This is where the "let your winners run" idea comes from.
Case 2 is where psychological weakness is more harmful to making money. Why? because it is mentally easier to scratch a winning trade rather than a losing one. The hope of wanting a trade to turn profitable is a more powerful emotion than the insecurity of having profits taken away.
The lesson here (at least this is what works for me) is never wash a trade that starts winning from the get go, let it run and add to it until it starts to show weakness. Know the statistics of you entry point and learn to anticipate the types of behaviors that follow. There are many finer points to this of course, such as profit targets and B/E exit points but those have more to do with money management rather than knowing when to wash and move on.
Case 1: Say you make an entry and it starts losing from the get go. Your risk is 3 points, i.e. you exit at a 3 point loss no matter what. The trade starts oscillating in the -1 to -2 point range and starts slowly testing the -2.5 range. The probability of the trade hitting the 3 pt stop is increasing the more time the price spends away from your entry. This is an ideal trade in which to attempt to wash or take a 2 pt or 1pt loss rather than the 3 pt loss.
Case 2: Now suppose you make an entry and it moves in your favor right away and oscillates in the +1 to +2 point range. Guess what, the same idea as above is now true... the probability of your trade moving more in your direction is increasing as the prices spends more time above you entry (in your favor). This is where the "let your winners run" idea comes from.
Case 2 is where psychological weakness is more harmful to making money. Why? because it is mentally easier to scratch a winning trade rather than a losing one. The hope of wanting a trade to turn profitable is a more powerful emotion than the insecurity of having profits taken away.
The lesson here (at least this is what works for me) is never wash a trade that starts winning from the get go, let it run and add to it until it starts to show weakness. Know the statistics of you entry point and learn to anticipate the types of behaviors that follow. There are many finer points to this of course, such as profit targets and B/E exit points but those have more to do with money management rather than knowing when to wash and move on.
Do you even have a clue about what you are talking about? Who is more left brained than Hershey with his flaw cards, trade logs and 3 ring binders.
http://www.web-us.com/brain/LRBrain.html