IN A WORLD OF FEW ABSOLUTES, HERE IS ONE YOU MUST ADHERE TO
Strategy: Blind Mans Bonds
Symbol Tested: ZB-067 (Active Contract: ZB-201209)
ORDERS for: 07/30/2012 (last complete bar: 07/27/2012 O=152^08 H=152^14 L=149^08 C=150^06)
Current Position: NONE
The bar to place the orders for opened at: 150^05
Place the following order(s)...
To Enter Long: BUY 1 Contract at MARKET
(Rule: "G R Buy")
If entry is filled, cancel all other existing orders and place the following order(s)...
To Exit Long: SELL 1 Contract at 1^20 below the Entry Price STOP
(Rule: "Exit Long: Stop Loss")
There are countless numbers of ways to trade the markets, many of which I have reviewed in the past in here. You can use patterns of Lunar Cycles, Elliott Waves, Oscillators, Tape reading, mechanical systems, or any one of a number of others. However, the one thing they all have in common is that you must manage your risk. The above example of the orders from my Bond System illustrate this point. By far the most important aspect of those rules is the very last sentence, which lays out where the stop loss is to be placed. In this case we know the max loss an any one contract with be 1'20. This is critically important.
If we round up this means in the worst case scenario we will lose $1700. Now we can go about determining how many contracts to trade etc.. Another aspect of this system is that we exit the first profitable opening, which is not listed because we can't have a profitable opening since we have not entered the trade yet. The next set of orders after this bar closed had that component listed. The point of all of this is that we knew the exact parameters by which we would exit the trade, before we ever entered it.
All of us myself included, are subject to the emotional pulls this business exerts on us. When we are in a trade that is working we feel good. When we are in a trade that is going against us, we feel bad. It is difficult to make decisions on where to exit, once we are in the trenches with either open profit or deficit. This is why in my trading, I always know what my exit will be before entering a trade. There are not any exceptions to this EVER. It could well be that I want to ride the trade for a while, so the strategy could be to exit if the lowest low of the last 3 days gets taken out. This is still a very specific strategy and is known in advance. The most common question I get in emails is about where to exit a trade. I hope this answers that question. If you are a buy and holder, since you have no exit, this point is irrelevant. However, if you are a buy and holder you should not be reading this blog anyway.
Here is the Coffee market, one which is setup for a decline in my view. We have the textbook rally in a down trend that has attracted commercial selling. Now we are moving sideways in a ledge type of pattern which would typically but not always, break to the down side. One of the beauties of trading and also the most frustrating, is exemplified on this chart. No tool works perfectly all the time. At times my COT Synthetic is just spot on picking almost every turn right on the nose. Then there are times like this where it is just dead wrong every time. In this case the regular COT data pegged the low almost to the day, and then the ensuing high as well. I look at both for this reason shown right here.
If I do ever come up with anything that is never wrong, and I am constantly trying to do so, it will never be displayed here. It would be sold to a Hedge Fund for millions of dollars. One thing I am sure of in this business, is that neither I nor anyone else, will ever come up with such a tool.
I am still looking to the down side in the indexes, but do not have any sell signals at hand.