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Posts Tagged ‘trend days’

Do you remember the game of chutes and ladders?

It was a favorite of mine when I was a kid.

Sometimes a picture is worth a thousand words.

Learn to see the big picture.

Bear markets jump out the window, so you either take the leap of faith or miss the move. 

 

Chutes and ladders

Chutes and ladders

 

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 Sloppy and choppy trading for the vast majority of traders unaccustomed to sequence trading.

 Plenty of setups today in both directions if you know what you are looking for.

Grabbing the majority of the move and leaving the last tic or two for the greedy usually works best for me.

That’s the essence of risk and reward; where do the odds of a small or large reversal begin to dictate your choice in direction?

Trend trading is my preferred method of playing; but in range days (or reversal days!) it seems wiser to play the range trading game until it doesn’t work anymore.

Having multiple contracts on increases our risk, but allows us to scale out our first points and then trail for the larger move. Scaling into a position is also viable provided we aren’t deluding our self about the true stop and breakout areas. These are gray areas that each trader has to address in our own business plan.

If I sense a big move is coming, I will assume a little more risk; not by adding more contracts but by scaling in early and then a bit late if it takes a little more time to develop the play.

I also am willing to assume more risk when the count is in my favor. Bases loaded, no outs, and a 3-0 count I assume the pitcher is coming with a fast ball right down the middle. When I get my favorite pattern setup, at the right time, and with the right volume signal, I am all over it.

Many ways to play the risk reward game; as long as I am willing to pay the price when I am wrong.

Staying in the game long enough to get another at bat is what it’s all about.

 

slice and dice

slice and dice

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If your system understood that today was a trend day wire to wire, congratulations, you made a lot of money. These days are even difficult for many professionals, because they defy gravity and our mind tricks us into thinking the market “has to pull back to some fib number” before moving on.

Dangerous thinking indeed.

I cannot stress enough how knowing the difference beween range days and trend days is so critically important to my success as a trader. Scalping against the trend can get you a few points, but ultimately is a losing game on these one way days.

Gap up or down days sometimes pull back and fill or partially fill the gap. On days when they do not, they will easily wipe out 5 days of gains if you fight it. They will destroy you financially if you “average” into your position.

Been there, done that.

If your methodlogy cannot identify the days when the odds favor the market moving away from the gap at the open, you are still missing a vital insight into how the markets really move. Read Jesse Livermore’s observations to grasp his philosophy on the folly of adding to losing positions.

If you have the correct stop and it gets violated in the first 30 minutes after the open, then reverse and get swept along to obscene profits. The rest of the stubborn traders who cannot turn on a dime will keep handing you their money.

Yeehaa!

 

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