Buy or Sell?
Enlarge this chart, and you can see that there is a very short term buy or sell decision to be made. I have short term signals telling me different things. How do you decide which way to go?
I think it needs to be mechanical. There is so much second guessing that can be done. I have done my share of it early in my trading career, and it can eat you up. Emotion is so closely tied to money, that we need to create as much separation between the two as we can.
A couple of simple rules. First, always defer to the highest time frame. In this case to the left, my buy signal is a day trade and my sell signal is an overnight hold. Therefore, by that rule, the sell wins.
Second, take the trade with the most favorable short term pattern. In this case, a gap open following the type of day we had yesterday, has in general been a better sell than a buy.
As a result, of those two simple rules, the sell trade was placed. Who knows if this individual decision will be correct. However, over a period of time, this type of logic will prevail. If it fails this time, I will research it heavily to see if there was something in the pattern at hand that I missed. If I find something, it will be put to use in the future.
For now, though, the decision is made, the trade is on, and I move onward to the next thing. No mental baggage. This is where systems trading helps separate the emotion from the decisions. Discretionary approaches have you going every which way, in situations like this. I would rather lose following strict rules, than stress out micro-analyzing every wiggle, and changing my mind every few minutes.