Posts Tagged ‘taking profits’

Zones of support occur at many different levels, depending on the time frame that you are trading.

One of the best trading analogies I ever read about was in Trading for a Living. Dr Elder likened these areas to “snowfences”. For those of you who live in a warm climate, devoid of snow, a snowfence has flexibility. It bends a little and “gives” on contact sometimes, but it doesn’t collapse. Great traders incorporate this concept into their system and develop strategies to compensate for this wiggle or breathing room.

When the price is near these important areas, I try to interpret a few key variables that will tip the scales in a certain direction.

Risk versus Reward is one of these important considerations. If I am willing to risk 1.5 points on a trade, what is the potential profit? If the trade is scary, but the market dynamics are at a major pivot, I remind myself that often the trade I least want to take will most likely have the best risk/reward potential.

Risk 1 to make 1 or risk 1 to make 7 or so points.

Support today I thought would be the 08 to 1410 area. The end of day trade was a classic example. 09 tested its double bottom, but held and bounced to the 1418, squeezing the late shorts who had hoped for the late day breakdown.

From a r/rperspective, yesterday’s 41 high said a few traders would like to take some of their 30+ points as profits.

 Good ole’ R and R, one of a trader’s best friends.


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