Registered: Oct 2010
01-26-12 10:14 PM
“To get through the hardest journey we need take only one step at a time, but we must keep on stepping”
- Some chinese guy
I continue to research and pick my brains to figure out this game. I keep reading, practicing and burning my eyeballs day in and day out. As mentioned in my previous threads I am believe the ultimate key to trading is experience as it is with an y profession. Everyone havetheir own learning curve and must respect it. I have previously tried to post my research or experience with time frames and changing our Goals and recieved good constructive feedback here on ET. Its for me and for whoever finds any value from it. As promised before i was working on "creating an oppurtunity" for a while and got delayed due to the holidays. Rested and ready to keep Marching - I am gonna post my work here for your opinions and advises and criticisim. Below is the first part of the work and will post the later part as soon as I am done with It. Next step as you would imagine is to do a live experiment for which I have a small ($3K) forex a/c ready. I hope you guys like it !!
Creating an opportunity
Trading is all about taking advantage of the market movements.
FACT: Markets move because they have to and they move all the time!
An Opportunity shows itself when an instrument moves in either direction.
FACT: There are only two possible moves – UP or DOWN!!
Once an Opportunity is brought to our attention by either Alerts/ Scanners or by just watching the charts that are open - We are presented with the option to take an action. Actions require the following thought process:
1. Is this a real move?
a. We can never tell.
2. Is the move up or down?
a. We can tell (visually) as long as we have a decent answer of the first question.
3. How far this move will go?
a. We can never tell. So we start to rely/ calculate on levels, trend lines, channels, other indicators etc. Ultimately we ARBITRARELY come up with a logic (ATR, levels, daily targets, averages etc.) and decide a TARGET which is again have no reality to it.
4. What size to take?
a. Based on the answers from question 3, we take a position (doesn’t matter if you are intraday or daily or long term trader) of the size that fits OUR tolerance of LOSS at that moment. (Please note that we have no way to know what the actual profit might be at this point. However we have defined our risk. Probably a good thing??)
5. Where is my exit?
a. We can never be sure and perfectly time an exit to give us max profit on that very trade. So we gain use the logic we defined in answer to question 4, define a STOP and TARGET, we place the orders and feel safe that statistics will take care of us. (I feel very strongly about statistics.)
i. Some might use size management to change the risk variably and add to the winners and cut the losers. This definitely creates a statistical edge and is a very effective method of trade management.
Probably most traders will agree with the above statements as they make up the most common thinking process when it comes to discretionary trading. Issue with process is that by the time we witness and process an “Opportunity”, it has already moved certain ticks that were produced by the “Movers” i.e certain community of traders (I am referring to the institutional & big players) have taken a position already! While you were waiting for the indicators or even price to show you opportunity – someone has placed a trade and now you are at risk of actually grabbing their close order and are at the “Other end” of the deal, which is at the mercy of fresh buyers to continue this cycle of looking for the next sucker.
P.S. - To Moderators - I keep posting in the "psychology" thread coz i believe all this is a mind game so far and i get the better quality responses. If you may feel differently - feel free to move it as nessesary. Thanks.