I've mentioned scaling out several times, but I seem not to have posted the chart, or the post that originally went with it (this is all years old). So, here it is: Scaling Out There need to be criteria for exits. But the nearly universal problem that beginning traders have with regard to exits is a desire to trade all in then all out. Add to that the fact that they are nearly always trading with one contract or one lot, and you have a doomed setup. The solution to exits is a simple one: trade as if you were trading five contracts or five lots and abandon the idea of being able to exit with all of them at the exact top or bottom. The goal is to make money, not to prove to oneself what a superior trader one is. Then determine in advance where each of those contracts will be sold. For example, if one is trading supply and demand, sell the first contract, in an uptrend, at the break of the demand line. If there is a subsequent continuation, sell the second contract at a lower high or the break of the next demand line, whichever comes first. If there is an even further continuation, sell the third in the same manner as the second. The fourth might be sold at a breach of the last swing low. Leave the fifth, for example, at breakeven, or, if price has not yet reached the breakeven point but has fallen more than 50% of the rally, exit there. Or, if neither of these criteria have been met, exit just before the close. The particular details are not as important as planning them out ahead of time. Then sell the first contract at whatever point you predetermined and paper trade the other four. Do this for several weeks. When it becomes second nature, carry the second contract for real. Sell the first and second contracts at your predetermined points. Paper trade the remaining three. And so on. Simple. No wringing of the hands, no thumb-twiddling, no head banging. For example:
I am glad you bring the AMT and boxes topic back DB. Looking at the UK ftse, there is an obvious Trading Range on the monthly chart. I have been monitoring it over the past few weeks, looking for either a breakout or a reversal. Price action has been confusing to me, until last week, when we have seen a clear rejection of the top of the range. http://www.elitetrader.com/vb/attachment.php?attachmentid=142509&d=1390739424.jpg[/image] My question for you is, the following; - If the reversal and rejection of the top of the range is confirmed, is it safe to assume that price will test the lower limit of the range at 3,500? Also you mention how it is best to avoid the middle of the range, so in this case, after the short there would be no reason to trade unless price is either at the lower limit of the range, or comes back to the upper limit, correct? All this assuming one is trading of the Daily/Weekly/Monthly interval. All the best, tupapa.
If the reversal and rejection of the top of the range is confirmed, is it safe to assume that price will test the lower limit of the range at 3,500? Safe? No. AMT is only a theory, not a law. All you can do is observe and collect data. Theoretically, yes, one could anticipate a return to the lower limit of the range. However, given the wave structure here, this could take two years. And there's always the possibility that price could find a new lower limit at the midpoint (I'll refer you to the pdfs I posted for examples), resulting in a trend change. Therefore, you'll still have to manage the trade. Also you mention how it is best to avoid the middle of the range, so in this case, after the short there would be no reason to trade unless price is either at the lower limit of the range, or comes back to the upper limit, correct? There are certain universalities when it comes to behavior. Compare the internet bubble with the tulip mania. However, one still has to characterize the market in which he's interested, e.g., does it trend more or less than it ranges, what are the general extents and durations of each, how deep are the adverse incursions into immediately-preceding swings and so on; that is, what is expected? If one doesn't know what's expected, he has no way of determining what is unexpected. And the unexpected is generally where the opportunities lie, the chief reason why EMH is academic. In a trade of multiple contracts held for this length of time, the most practical approach may be to scale in and scale out at those levels where price decides to segue from trend to range. This will take a lot of management. And a lot of time. So it all inevitably comes back to your goals. If you look up at the post I made on scaling out and multiply this by many months, you'll appreciate the orchestration involved.
FWIW and in the context of the pdfs provided earlier, here are the states of being for the NQ and ES. We'll see what sort of cues and clues they provide when they open this evening.
For convenience, this is a copy of the chart of the very-short-term trend channel I posted on Friday:
Half the NQ leaders are weak and half strong, so that's null. OTOH, the up pressure in both the NQ and ES are for now intact. We'll see what happens during the next hour.
Again the chart I posted yesterday. We appear to be on our way to the 3450 area (anywhere from there to 3435), though not necessarily today. Two consecutive days of freefall in the same direction is unusual, but not unprecedented. Incidentally, for the trolls, I posted this two hours ago in chat . . .
One could call the action on Monday "climactic" given the volume. And the rebound Tuesday was okay. Since then, however, the action has been rather pitiful. This suggests that this rally has been a "technical" one due primarily to short-covering, i.e., if buyers were truly excited about this, they'd be more aggressive. OTOH, if all they're doing is covering shorts, their buying is done, and we retest the trend channel's lower limit reached Monday. We're currently holding above the demand line drawn off Monday's low, so we'll see what happens over the next two hours.