The accepted method of trading is to put on a trigger and manage risk by using stops. It has been my experience that a system that relies on stops to manage risk reduces the performance of a similar system that using Money Management instead. Case in point, today's fall on the Russell.
The ER2 has a tendency to fall a full point in a matter of seconds when the market is falling. What is occurring when that happens you wonder? It's very simple....stops are being hit. And what happens after stops have been hit? Again, it's pretty simple....the market bounces and/or rallies. Pull up the chart.
Trigger 1: 16.30. This one triggered right at the bottom of that candle and was executed at the market because the ER2 fell about 1 point in 3 seconds -- stops are getting hit so I buy. The market goes below that low and would have triggered my stop <i>if I had one</i>, but of course I didn't. In fact, I wanted to add to the trade down there but couldn't get the order up fast enough. Market bounces and triggers my exit at the high of that candle, which was basically dumb luck. I would have been out up there somewhere because I would have lowered my exit but I'll take the gift.
Trigger 2: 15.30. This was the order that I wanted to add earlier but I couldn't raise it fast enough so I left it there for a test of that low. Sure enough, the ER2 falls about a full point in 3 seconds right into my order. Price eventually goes lower and would have triggered my stop <i>if I had one</i>. In fact, the ER2, again falls about 1 point in 3 seconds so I add to the trade. Instead of stopping out with a loss I'm increasing my position at 14.00 right at that low. The market goes below that low and fell a full point in about 3 seconds and would have triggered my stop again <i>if I had one</i>. Instead, I'm buying again at 13.00, right at that bottom. Sure enough we go to yet another low that would have triggered my stop again <i>if I had one</i> and would have taken me out at the exact low of the day (at that time). I wanted to add one more trigger at that bottom but I took my eye off the chart to see what the ES was doing and missed it. I was hoping the market would come back to me but that wasn't the case. Oh well.
The market finally recovers and runs into my orders where I take my profits. Had I used a traditional way of trading and used stops I would have had 4 big fat losses but instead, I have one nice win and one big fat win. I am doing the exact opposite of the crowd. I am buying when they are stopping out and then selling into what they are buying.
An Important Note: This strategy doesn't come without risk of course. You really need to know how to read the market and you need to be pretty good about sniffing out the bottoms. If you go review my triggers you'll notice that I'm buying pretty near the exact bottoms of the candles so obviously I've a lot of practice doing this. Don't try this with real money if you want to give it a shot. I'd recommend at least 2 months on a simulator. You <b>really</b> need to be able to read price action. If you don't have a good grip on price action then this strategy comes with some significant blow up risk.
Oh, and many ways to skin a cat. There as many strategies as there are traders so if what your doing works then trade on my friend, but if what you're doing isn't working then perhaps there is <i>another way?<i>
The ER2 has a tendency to fall a full point in a matter of seconds when the market is falling. What is occurring when that happens you wonder? It's very simple....stops are being hit. And what happens after stops have been hit? Again, it's pretty simple....the market bounces and/or rallies. Pull up the chart.
Trigger 1: 16.30. This one triggered right at the bottom of that candle and was executed at the market because the ER2 fell about 1 point in 3 seconds -- stops are getting hit so I buy. The market goes below that low and would have triggered my stop <i>if I had one</i>, but of course I didn't. In fact, I wanted to add to the trade down there but couldn't get the order up fast enough. Market bounces and triggers my exit at the high of that candle, which was basically dumb luck. I would have been out up there somewhere because I would have lowered my exit but I'll take the gift.
Trigger 2: 15.30. This was the order that I wanted to add earlier but I couldn't raise it fast enough so I left it there for a test of that low. Sure enough, the ER2 falls about a full point in 3 seconds right into my order. Price eventually goes lower and would have triggered my stop <i>if I had one</i>. In fact, the ER2, again falls about 1 point in 3 seconds so I add to the trade. Instead of stopping out with a loss I'm increasing my position at 14.00 right at that low. The market goes below that low and fell a full point in about 3 seconds and would have triggered my stop again <i>if I had one</i>. Instead, I'm buying again at 13.00, right at that bottom. Sure enough we go to yet another low that would have triggered my stop again <i>if I had one</i> and would have taken me out at the exact low of the day (at that time). I wanted to add one more trigger at that bottom but I took my eye off the chart to see what the ES was doing and missed it. I was hoping the market would come back to me but that wasn't the case. Oh well.
The market finally recovers and runs into my orders where I take my profits. Had I used a traditional way of trading and used stops I would have had 4 big fat losses but instead, I have one nice win and one big fat win. I am doing the exact opposite of the crowd. I am buying when they are stopping out and then selling into what they are buying.
An Important Note: This strategy doesn't come without risk of course. You really need to know how to read the market and you need to be pretty good about sniffing out the bottoms. If you go review my triggers you'll notice that I'm buying pretty near the exact bottoms of the candles so obviously I've a lot of practice doing this. Don't try this with real money if you want to give it a shot. I'd recommend at least 2 months on a simulator. You <b>really</b> need to be able to read price action. If you don't have a good grip on price action then this strategy comes with some significant blow up risk.
Oh, and many ways to skin a cat. There as many strategies as there are traders so if what your doing works then trade on my friend, but if what you're doing isn't working then perhaps there is <i>another way?<i>