I was really tempted to jump on the ES train as it headed south this morning. BUT, that kind of trade is not in my program at this time. My question to all those staunch system traders out there, even to those that mix in a little discretion... How do you handle outlier trades? Do you take them? Do you watch them go by? Do you have a separate account for them? Or do you look at them as that rare, golden opportunity that is to be exploited for all it's worth?
I saw the ES rally after it's sudden drop. I wanted to hop on real bad b/c I knew that a sudden reaction like that can have a sudden reversal. But It wasn't in my system so I didn't take it. The way I look at it is that points are only an outcome of my discipline, patience and system. Outliers are irrelevant and chasing them will only hurt my performance. But I could be wrong.
"I was really tempted to jump on the ES train as it headed south this morning. BUT, that kind of trade is not in my program at this time." shorting a big gap down like this morning is the surest way i know to go broke.i was buying filled 7 stocks on the open all long all profitable.left a lot on the table got out too soon.
After the Michigan sentiment the S&P went down about 19 index points. I guess it just depends on what vehicle you are trading as to whether or not shorting on a big gap down can be profitable. This is another instance of where the index futures behave very differently from stocks. This is also why I feel you have a bigger advantage trading the indexes rather than stocks on big move/news days. When I traded stocks I felt so often that my stocks did nothing or traded opposite the indices while the market was really moving.
What do you mean by outlier trade? Are you talking about big moves that you saw but didn't catch (20/20 hindsight)? Either you trade according to your method or you trade on a whim. Are you asking if anyone trades on whims? I'm sure there are many who do it regularly, and some on occasion, but everyone has done it at one time or other. Anyone who tells you they've never placed a trade on a whim is lying.
What I meant by an outlier is a trade that is not in your plan, but in your vehicle you trade, you see it developing, and take it anyway. ie, your plan is buying dips on an up-trend, and selling rally's in a down trend and you end up chasing a market. The chasing (bad example) would be considered the outlier. You can call it trading on a whim.
I believe it helps a great deal if you are anticipating certain moves or know the "levels" in advance...At least then you have a concept of what "should" happen if/when it hits a certain price, breaks a specific support level, etc... But, from my experience, when the market has sudden "pockets" or "spikes" lower the emotional instinct is to "hop on" and to get in on that action, but most of the time those are very regrettable trades...In general, I feel, personally, my worst trading days are when I am using the shorter time frames to control me as opposed to vice versa...It is much easier on the psyche and the account, in my opinion, if you can at least anticipate a certain type of action occuring first and then see that scenario unfolding... I also think that if you do get in situations where you feel "beyond the brink" or that you are trading an "outlier" move that trade management becomes the deciding factor in how you come out of it...In my opinion, that always means you need multiple contracts because trading a 1 lot almost invariably either leaves money on the table or gives back big open equity...I just don't think you can manage bigger moves with single contracts...Need multiples... It always helps to be positioned BEFORE the event happens...That way when all the reaction comes into the market you are already in the catbirds seat...Index futures, from my experience, definitely reward positioning ahead of the bigger events...Tricky as all hell, but it can be done...and even better it does not have to be done everyday, just once in awhile in these markets and you can get some seriously good runs...Avoiding all the chop is the real discipline...Something it seems all of us are continually working on...