I'm pretty good at jumping on trends but bad at knowing when to take profits. I pick good entry points but lousy exits. When is a good time to take profits trend trading. Are trailing stops worth using or do you just continually move your stop above points of resistance (when shorting). My initial thought was to take profits when the trend breaks, but I find myself uncertain of what to do when it breaks in my favor. Any input would be appricated. Thanks!
What is your exit strategy? SOunds like it's missing? What has testing your system told you about exiting in various conditions? If this is foreign to you, then please read up more on trend trading. The answer is not for one post.
before i do any trades i draw trendlines,they can be yearly monthly,weekly,daily,hourly,30 min,5 min,3 min,. Now i have a maze. The market is like a pinball and it bounces around between these lines.So if it hits a line and bounces or breaks a line,,where is the next line it will touch,thats my target . When i put on a trade.I can see it so i assume everyone else can ,so my target is usually a point before that line or more,assuming if i wait for it to touch i'll miss it, A lot of times if we are all seeing the same thing it'll bounce a lot earlier because so many people don't want to miss iyt . If you first become good at taking losses,then your emotional stress will be lowered because you know you can't get hurt.Now if you have a profitable position use a trailing stop . Once you get halfway to your target ,take off half. Now wait and cash in. If you work for yourself you are a business. To build a business you need to keep costs low and have continuos profits.Think of your trades as purchasing inventory and seling it for a profit. When stores have a sale ,they are using selling at cost or below,to stay in business.They then use the cash to buy other, hopefully profitrable inventory.The mindset willl allow you to put all your trades in a big basket and take the emotion out of it.
ammo gave you some good advise. I could never trade that complex. Only my system creation is so riddled with details. My day-to-day trading has to be boiled down to one signal, or I will not be able to trade consistently, the same way, everyday, and remain profitable. I have no idea what you trade, so let's start with that. Stocks? Options? Futures? Forex?
I trade stocks. My stratagy is to first determine the overall direction of the market and then look at industry rankings. If the market is trending down, like this one, I start with the industries that are doing the worst and flip through all of the 3 month daily charts in those industires. I find stocks that are trending in a regular pattern downwards and research the company's mid-term prospects. I try to understand why the copmany and the sector is down and determine if there are good resasons for the downtrend to continue. I draw suppot and resistance lines for the trend and try to get in near a resistance line. I place an initial stop above a daily resistance point (as a safety net in case something happens when I'm not watching) and then watch to see if the stock breaks the resistance trendline. How would one back test this sort of stratagy?
I wish you good fortune, but I could never function as a trader if I had to think that much to make daily trading decisions. I built my systems to give me a straight answer on a trade, yes or no, and that is enough for me. I went through a lifetime of spaghetti-strangled complexity to make them so simple. However, there are some great stock traders on ET, and I am sure they will help you.
I often hear traders on this site saying they have simple streamlined systems that they backtest. How do people select securities to trade with these systems. There is a lot of talk about signals but not much on picking securites. How does one test a system even if its as simple as a moving average crossover? Do you pick an arbitraty day to start and run it over all stocks that meet your criteria? How does one apply this when there are so many stocks out there to trade?
That's a very good question. And one reason why many traders gravitate toward index futures. But if you are determined to trade equities, one way to answer the question is - what makes sense in terms of your strategy? As a simple example, if you are into buying pullbacks in can make some sense to follow a list of fundamentally strong stocks with growth. Because they'll often tend to attract buying interest on weakness. (Assuming there is any buying interest, which is lacking across the board right now.) Conversely, if you are shorting, it may pay to look into fundamentally weak stocks that are showing some strength. Use a scanning site (Yahoo has a good one) to build a list of stocks that you think might make sense with your strategy. Backtest that against a control group. You may find that the results do have some logic that can help you. Also look at volatility, volume, etc. to find what works best with your system. Bottom line is, good systems generally have some underlying logic, as does selection of the instruments to trade those systems. Finding a good combination of strategy and instrument isn't easy, and its why success doesn't happen overnight.
You pick securities that have the highest probabilities of correlating with your strategy. If your a weekly swing trader you look for stocks that have constant swings through out weeks. If you like to trade overnight you look for stocks that have high amount of day to day fluctuation. Finding a security that contains historical characteristics that correlate with your strategy is the easy part. Finding the signs that say whether this security is going up or down is the part where people start to really get confused.