Curious what the median winner was on a typical day?
At first, quite naturally, my winners were one tic. As I gained experience (through survival, careful observation, and copious daily journal notes) I learned to let my winners run or even add to my winners. I would unwind my winners ONLY to floor brokers. I would also puke ONLY to floor brokers. Through experience, I learned how to aggressively unwind a loser at scratch or with a one tic loss but if I had any balance left I always honored the hard stop-loss.
I’m reaching the conclusion that scalping with a hard and fast stop loss is not the best route for me to take. I believe I would be better served by using a dynamic stop loss triggered by reversals in market bias/sentiment as defined by the relationship between price action and key moving averages.
The relationships to which I am referring as I currently conceptualize them are as follows:
Rather than use “fanning moving averages” on a higher timeframe chart (anchor chart) to confirm the longer-term trend (as described by Andrew Lockwood) I am using…, which I translated from the 60-minute time frame, as “anchor moving averages” in the context of five-minute charts.
Probably a general rule of thumb it would be advisable to follow is to seek only short positions when all the action is taking place below these indicators, or long positions if all the action is taking place above them. (Remain on the sidelines if it is unclear as to which direction these indicators are headed.)
That being said however, the ultimate arbiter of the intraday trend on a five-minute chart is the yellow brick road, which consists of…
Since this measure reflects what is happening in the immediate timeframe, it should be assigned the greatest amount of weight.
When it comes to this measure, the hard and fast rule is to never sell when the action is taking place above it, especially if it the road is sloping upward; and never buy when the action is taking place below it, especially if the road is sloping downward.
However, as long as the action is taking place above the anchor moving averages, a trader probably should not sell, even if candlesticks are forming below a downward sloping yellow brick road. It would probably be better to wait until the action transitions southward to the point that it is not only below the road, but also below the anchor moving averages, or look for another trade opportunity where this is already the situation.
Likewise, if the action is taking place below the anchor moving averages, a trader probably should not buy, even if candlesticks are forming above an upward sloping yellow brick road. It would probably be better to wait until the action transitions northward to the point that it is not only above the road, but also above the anchor moving averages, or look for another trade opportunity where this is already the case.
If operating under these sets of guidelines, believing them to be valid indications of price direction, it would make sense to exit positions as soon as a bearish scenario turns into a bullish one, or a bullish scenario turns into a bearish one.
Hence, if I am in a short position with candlesticks forming below the yellow brick road, I would exit the trade as soon as candlesticks begin forming above it rather than wait for the rate/price to hit a hard and fast stop loss. This would preserve much more of my gains, and render losses and drawdowns virtually nonexistent.
I had to read your post twice. Still not sure what your position management rule is. Just a thought: Occam's Razor has been mathematically validated.
To make things a bit easier for those following at home. The historical part of the chart always looks perfectly sensible and obvious because in hindsight it's like reading yesterday's paper. The moment you enter a trade - you have no clue if the market is going to go up or down. You are simply taking the very best risk versus reward entry you can at that point in time if your trading system gives you an entry signal. No one can predict the future.
The important part to trading is that when you enter a position - you have to know where you are going to puke and where you are going to take your profit. The market is always going to have a much larger trading range but your job is to take your little piece of the trading range out of it and move on to the next opportunity. Do NOT concern yourself with selling what you are convinced are "highs" or buying what you are convinced are "lows". The market determines that - you don't.
So, in this example, the trader sold CL at 5224. He immediately sets his stop loss level at 5236 and his profit target at 5199. He's going to risk 12 tics to make 25 tics. The promptness and courage and conviction you show through solid position management is from my observations what allows part time traders to become full time traders. Position management builds account equity.
Punters spend 90 percent of their efforts on trade entry. Successful traders over a protracted period of time will have very good position management skills.
The important part to trading is that when you enter a position - you have to know where you are going to puke and where you are going to take your profit. The market is always going to have a much larger trading range but your job is to take your little piece of the trading range out of it and move on to the next opportunity. Do NOT concern yourself with selling what you are convinced are "highs" or buying what you are convinced are "lows". The market determines that - you don't.
So, in this example, the trader sold CL at 5224. He immediately sets his stop loss level at 5236 and his profit target at 5199. He's going to risk 12 tics to make 25 tics. The promptness and courage and conviction you show through solid position management is from my observations what allows part time traders to become full time traders. Position management builds account equity.
Punters spend 90 percent of their efforts on trade entry. Successful traders over a protracted period of time will have very good position management skills.
Exactly what someone would say if they didn't have access to the proprietary yellow brick road indicator.
I am curious what you (and anyone else) think about concept of "defending your position?"
When I used to swing trade and would be caught long SPY on gap down, for example, instead of puking at the open, I would try scalping my way out by shorting IWM. So in effect I was hedged against larger losses yet gave my loosing overnight position a chance to come back. Of course eventually I said to myself ... Buddy, if you can't take the heat, why don't you just scalp/daytrade in the first place!?
If it weren’t for EURAUD, which has been behaving extremely erratically and therefore kicking my behind all over the place, I would be doing rather well I think. However, I continue to trade the pair believing that coming to terms with how to deal with such a crazy acting asset will significantly heighten the expertise with which I am able to apply the tools I use to interpret charts and forecast price action.
The other thing is, if I were trading full-time as opposed to popping in and out of the room the way that I am forced to do at the moment, I would’ve been out of losing trades long before being handed such hefty losses due to my stop losses getting hit or my not being there when the graphics make it clear that things have changed substantially.
The other thing is, if I were trading full-time as opposed to popping in and out of the room the way that I am forced to do at the moment, I would’ve been out of losing trades long before being handed such hefty losses due to my stop losses getting hit or my not being there when the graphics make it clear that things have changed substantially.
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Or, conversely, trading products that don’t model well for you will deplete your account equity down to the point where your expertise is no longer required. Trading is about building account equity and not stroking personal hubris.
I cycle in and out of certain markets that don’t “behave” or model well all the time - and I encourage my clients to do the same. That’s the beauty of electronic markets in general and spreads in particular - there are literally thousands of combinations to model. Cherry picking is smart !