Fade a trade or not.

Discussion in 'Trading' started by gifropan, Jan 2, 2011.

  1. I have been researching this particular aspect of trading for some time and would be interested in having ET members' opinion and suggestions on the subject. For the purpose of this discussion we assume the trader is taking a long position but the arguments are equally valid for short positions.

    The question is this. Assume you have identified an up trend and aim to trade in the direction of the trend.

    a) Would you enter the trade on a pull back and use a recent low as your stop guide


    b) would you wait for a pull back and then enter the trade on a new high and use the recent pull back low as a stop?

    a) If the trend is going to continue, (a) had the advange becuase you can buy at a a more favorable price and you can limit your risk because your stop can be tighter. The disadvantage is that you may not get the pull back you are waiting for and the market may continue to make new highs and you will miss the move.

    b) If the trend is going to continue (b) will enter the market at the new high and will not miss the move. The danger is that if the trend has ended and there is not going to be a new high you are entering a loosing trade.

    I do realise that trading is a stochastic process and is about a lot of what ifs. This is why I welcome the opinion of the more experienced traders as to which approach you think statistically provides the better root to trade entry.
  2. Unlike too many posters here, English is either your native language or you are damned good at it. Therefore, an answer is earned. This is not a logic problem. It is a statistical problem. If you can simply and unambiguously codify your detection of a trend, you can backtest to answer your questions. In my trading, the answer is always "Hit it as soon as you see it."
  3. Redneck


    A couple of question I ask myself before each trade

    How fast is price moving

    How easy is price moving

    The answer to those two will help answer when/ where/ how you should enter


    Like AD said: Hit it as soon as you see it… and have some repeatable method to identify it

    But always know where to get out if that trend dies


    Just think of all the connotations the term "trend" has for intraday trading – could boggle the mind... Unless you’re simple minded like me :)

  4. ammo


    you didnt mention supp res which is more important to entering,if it is 5 and 10 and has run to 9 and pulled back to 7.5,do you want to get long with the trend or short back to 5,better to get in at the extremes 5 or 10 ,the middle could go either way,sometimes you just missed the move
  5. Visaria


    I don't think there are definite answers.

    Perhaps something to think about might be money management and position sizing (hint: trade more than 1 contract).

    Also the psychological factors such as how you feel about buying highs and selling lows need to be addressed.
  6. JM1987


    totally dependant on the situation I would say, most of the time i go with option B...that being said if the price retraces to a proven support level and holds then I get in and set a tight stop
  7. You can never know whether a certain correction is a pullback or a trend reversal. My answer is then No.

    There is a contradiction here, sort of hindsight. If you have identified a trend, what is the reason for entering the trade at a new high and not at the pullback? The only answer can be that you are not sure whether you are on a trend at that point. Then your original assumption does not hold. The answer is No because it does not make any sense.

    The answer IMO is, given that you have identified a trend, just trade it. The entry is not that important. It is the exit that is important.
  8. The OP has a long way to go.

    Either of the paths below will move him to advanced beginner.

    Certainly he is on the sidelines a lot and it is good that fear and anxiety keep him out of trades.

    Path 1. Learn the difference between retraces and reversals at the the when either begins. To do this you have to understand the order of events of trends (NOT trend following but trend monitoring and analysis).

    Path 2. Consider looking at trading as a systematic structure process and a results producer. Make your first consideration you behavior. You're being told very frequently that you do not know what is going on.

    You get tipped off by one or more of six emotions (See Mark Dougles). Ay that time go away from Douglas's pronouncements and appproach the dilemma being pointed out to you from the tenents of Behavioral Finance. In particular, journal each emotional warning you give yourself and follow through with the BF remediation recommended. Of course, do stay out of the market and do focus on making a reasonable change in your approach to take care of the cause of the emotional warning you get.

    Notice in your posts here you raise a lot of subjunctive emotional considerations.

    To wit: all of your scenarios are hypothetical in the sense that larger more profound misunderstanding surround and envelope these scenarios.

    It is most difficult for traders whgo are addressing "how to make money" to go through the shift and transition to "begin to learn how markets work". Traders who know how markets work also undertand that profits take care of themselves.

    People who orient to how to make money get to spend 10,000 hours, I am told. If they do not run out of gas first, they do work their way towards understanding how markets work.

    Taking the market's offer at knowledge and skill levels, say 5 or 6 levels beyond where you are terminally stuck, rarely engenders the constant bombardment of emotions you are experiencing, EVEN when you are correctly on the sidelines.

    Your OP post is a "survival" expression. Change paths promptly.
  9. NoDoji


    Put on your position when the pullback finds support at/near the trend line or 20-period moving average (these are generally in sync with each other) and place your initial stop below the pivot low of the move. You should be entering off a higher low (or the bottom of a consolidation range/channel following a strong move up).

    One good way to know that the pullback is not a trend reversal is to trail a buy stop as price pulls back. As each price bar in the pullback move closes, place your buy stop just above the high of the closed bar. The advantage of this is that you'll be positioned in the event the pullback is shallow and never makes it back to the trend line/20 MA. The other advantage is that price action (buying strength) will sweep you into the trade in the direction of the trend (up).

    Alternatively, you can place a limit buy order at the trend line/20 MA with your stop below the previous pivot low. This is an anticipatory method of entry and carries a bit more risk; however, as long as the trend is intact, it gives you a better entry price.

    Once you're position is on, if you have the leverage to add, you should place another buy stop just above the previous high (previous resistance). This allows you to use your unrealized profit at that point to buy entry into the expected breakout to a new high. If the breakout fails, you can exit quickly for at least the profit you had on the first position, and if the breakout succeeds, you've got decent size throwing money at your account :cool:
  10. Thank you complementing my English. As it happens English is not my native language, however, I have always tried to learn to speak properly and write correctly. So any advice in that direction is also welcomed.

    Now to trading.... I once was at a presentation by Jack Bernstein. In his talk he explained the concept the a trade has two parts to it. Setup and Trigger. If I try and relate this concept to my post the identification of the trend would be the "SetUp" and how you approach the entry would be the "trigger", Am I correct in understanding that in your reply and most of the others' here SetUp and Trigger happen simultaneously?
    #10     Jan 2, 2011