Trade Aptitude
Results of Friday’s Best S&P Futures Turning Points: Neither trade triggered.
Today’s Best S&P Futures Turning Points (consider wider stops and less size in fast moving markets):
Buy 4364.25 stop 4359.25. Short 4457.50 stop 4462.25.
The World Sentiment Index: (+100/-100) jumps from +14 to +64 with all major world markets Bullish.
Catalysts: Existing Home Sales & Richmond MFG Index @ 10:00. Fed-Speak from 13:40 to 15:30. More bank downgrades.
Quick Tip: Take the Profit?
Rule-based trading is essential for any trader who doesn’t have extensive experience and success already. Eventually you can get to a discretionary state, relying on your intuition and experience, but not at first.
There is a middle ground, though. A level of intuition and experience where you start to be slightly flexible with your rules.
A good example of this is open trade management. Let’s say you have a proven exit strategy with three profit targets based on historical performance and present time volatility. The first two are easy to execute. You’ve already entered them as limit orders. The third target is where some flexibility is required.
The bulk of your profit from an exit strategy like this will be made on the final exit. The first two targets act as “risk management” exits. You bank some money and significantly reduce your risk on the first target and eliminate all risk on the second target guaranteeing a modest winning trade.
Here is where the psychology of profit taking comes in. You’re watching your open profit, on the most important part of the trade, increase and decrease. You feel confident when it’s increasing smoothly. You might feel concerned about the decreases, leaving money on the table.
From a rules perspective you have two obvious alternatives:
1. Trail stop. The benefit is you may catch a significant runner. The problem is you’re always giving up plenty of open profit when the exit is triggered.
2. Chart features. The benefit is you may catch a turning point and capture the maximum profit available. The problem is you may see the price continue far beyond your exit.
Which alternative resonates with your personality?
One reference point I read recently might help you decide. In his book Trading to Win by Ari Kiev, He suggests its better to take a profit than hold on because you don’t think it will go against you. You can always find another candidate.
Essentially, Kiev is assuming you have an abundance of opportunities. If not, if you’re trading one strategy and will likely have to wait patiently for some time to find another candidate, you’re less likely to take the profit.
These decisions have less to do with the math of trading and far more your emotions. Are you ready to master your psychological trading game? Click here for details.
Trade Fearlessly,
Mike Siewruk