Monthly Archives: March 2010

Profiting From What the Market Doesn’t Do

Sometimes in conducting our analysis and formulating trade ideas, it’s important to notice what the market does not do.

The chart below is a 1-minute snapshot of the 6B (GBP FX Currency Futures, equivalent of GBP/USD for forex traders) from last night, Thursday 25 Mar 10.

The market was established in a downtrend with a clear larger-timeframe bearish bias. However the 30 min chart (not shown) has an area of major support at 1.4920-25, so this acts as a warning sign for a potential reversal.

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Active vs. Passive Trade Management

I thought I’d share some recent email Q&A on the topic of active versus passive trade management. There is so much more that could be written on this subject. Hopefully you’ll find this initial email question and reply to be of interest. Feel free to share your thoughts as well if you agree or disagree. As mentioned in the reply, nothing in trading is black and white.

 

Email Received:

Lance,

I really have found your site helpful as I try to set the foundation for a career in futures trading.

A couple of questions about stop and profit target management. I’m not a probabilities expert, but can’t one make the “argument” that once the trade is actually put on, accepting anything less than the initial risk/reward outcomes actually interferes with the probabilities and in the long run can neither help or hurt because even decisions to adjust are subject to probabilities and will even out over time?

In other words, tightening my stop may help me some and hurt me some, but isn’t it likely to be a wash over the course of 1000 trades? Also, once the trade is set, even if stops are immediately adjusted, the full risk of the initial stop was incurred once the trade is entered, so the possibility full reward should be allowed to occur. As an example, with a 9 profit and 5 loss stop, as soon as I enter a trade, I am assuming a 5 tick risk. It doesn’t matter that I tighten the stop, the risk was already undertaken. So, for my ratios and probabilities to work in the long run, shouldn’t I just let the trade be what it will be?

Thanks for your perspective and continued success.

RM

 

Response:

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Dumb Trades – They Happen!

My plan on Wednesday was to trade the US forex session; not because I expected the best opportunity at that time, but because that would be the only time period that would not be impacted by ‘family time’.

Then unexpectedly, at around 7:15pm (early UK session), my wife and kids decided to head over to a friends place for an hour or so. Awesome! The Manufacturing Production figures come out in 15 minutes. That should create a little volatility and allow me to get in a trade or two before they return.

You can see the results on the chart below. The shaded area represents major support in the area of 1.4875-85. The entry and exit are indicated by the blue and pink trade markers. The news release was at 19:30 my time – the large bodied red candle.

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