The first question is answered in the posts right here. Therefore Iwill not repeat it here. The second question is more complicated: I don't have an "automatic" or simple formula. It depends on the following conditions: 1. My average in-price in relation to where support and resistance levels are located 2. The strength of my conviction in the direction of the trade 3. time of the day 4. Number of contracts I am holding 5. The divergences between the various indictors I use 6. The larger TF charts to support or refute my conviction ( which might be bsed on a shorter TF) (there may be a few others that I use less regularly, but can't think of at the moment).
How about kicking me in the butt and saying that it is not good enough, and that I should have made up the loss from yesterday FULLY by now....
I have critically reviewed my performance for the month of July (technically I have one more day to go before the month end, but I have decided to ignore that and consider Monday to be the start of the new month), and have modified my trading rules and guidelines for August, 2006. The following are a combination of my circuit breaker rules and regular trading rules. At the end of this month I will review my performance again and make any further changes necessary / warranted. RULES FOR AUGUST 2006: 1. At least three of the following indicators must be in agreement with the direction of the market before taking the trade Bollinger Bands Stochastic MACD Histogram Ask volume vs. Bid volume Previous day's support and resistance lines (major / minor) Fading the Opening gap (when there is one) Divergences between indices, and, between indicators 2. Entry is determined by 1 minute chart, but 5, 10 and some times even 60 minute charts are checked against, for directional confirmation, before taking the trade. Under normal "profit-taking" conditions (i.e. market is going in my direction) exit is also determined by 1 minute charts, though 5 and 10 minute charts are checked for further confirmation. 3. Trade only "low-hanging fruit" (i.e. the greater the number of confirmations, the lower the hanging fruit) 4. Exit Rules when the market is going against me: exit is determined by 5 or 10 minute charts, depending upon support/ resistance lines and the bid/ask volume around those points, as well as predetermined max loss for the day. 5. ALL trading halts for the day when loss limit $5,000 is reached (reduced from 10,000 which was my last month's limit). 6. MUST go FLAT before ANY scheduled financial news (e.g. 8.30 AM CPI report or 10 AM Housing report etc.). 7. Reduce number of contracts to trade per day. Max contracts limit for August is 200 per day. Remember, LESS IS MORE. 8. Stop trading at 10.30 AM. 9. ONLY EXCEPTION to rule #8 is when morning gap is still open after 1.30 PM (EST), and at least 3 of the above indicators are pointing to an afternoon close of the gap. Otherwise, it is safe to stay out, and wait for the next trade set-up. 10. Optional: Pick one day of the week and DON'T TRADE at all. AS ALWAYS, NO POSITIONS HELD OVERNIGHT.
I had a chance to read a little bit about "martingaling" over the weekend. I don't believe I would be interested in doubling my position after I have a loss and I don't like either the assumptions behind it or the increased risk that comes with the execution of this principle. Maybe I don't understand it well enough to appreciate its finer points, but I think I will pass on it.