Making of a method

I often lose my place in the trend due to early exits caused by a shakeout.

There are certain trades that deserve a quick exit based on the premise of the trade. An aggressive reversal off a range or a ret entry seeking to cross a double bottom can be exited quickly if price is not doing what it should, i.e. developing a new trend or moving past resistance.

So I need to be aware of the context. If strong trend or fertile conditions are behind me, I need to give it room to work - perhaps using swing lows instead of DS line breaks for exits.

If the trade has definite expectations, then I need to be clear on what constitutes trade failure. It is easier to form definite expectations for a trade at a turning point than one in the middle of a trend.
 
Quote from deaddog:

The charts explain what you did. Can you explain why?
What prompted the entries and exits?
More...



Entry is based on:

1) Staying on the right side of the trend or off a turning point.
2) Waiting for a retracement to enter.

Exit is based on:

1) Break of trend momentum

Entries and exits are judged within the larger context. Ex: Presence of nearby S/R, extension of trend, etc.
 
"Failures - the market's message that something is no longer as positive as it had been - must begin to occur at the upside....that is, at a better price. In the market's perverse way, precisely when a rebound is alleviation anxiety, the position may be failing. Risk then reappears, requiring the freedom of open mindedness, and the technique of understanding such failure within the context of an apparent rise, so as to make a decision"

Justin Mamis - The Nature of Risk


Db could you please share your thoughts on this passage from page 191? What are some examples of reduction of anxiety but increase of risk?
 
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While I don't have much data yet, a casual glance at the numbers indicates that Reversals have been an expensive habit.

They are seductive because when they do work there is a sweet feeling of having caught the turn. But more often than not it ends up being either a chop scenario or an expensive counter trend mistake.

Some ways to deal with this.

1) Tighten up guidelines to define a reversal as a clear break of prior swing.

2) Wait for a larger retracement to form. While the lower high and crossing of DS line is signalling weakness, the reversal is often taking place after faking me out. Unlike a continuation, the larger trend is not on my side, so any move against the reversal leads to quick choppy exits, since the cost of waiting can be high if the trend resumes with a bang.

3) Observe activity inside the retracement and classify it into a risk grade. Include this in decision making by choosing reversals only when RET activity is signalling a clear weakness in the ability of traders to carry the trend.

Sharp reversals look sexy on the chart but the slow topping one's get the job done too.
 
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