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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Robert Rose who wrote (1319)	12/11/1998 9:46:00 AM
From: HairBall	Read Replies (1) \| Respond to of 99985

Robert: I do not want to step on Debra's reply, but it boils down to knowing when to fold and when to hold a position. Regards, LG

To: Robert Rose who wrote (1319)	12/11/1998 11:23:00 AM
From: Debra Orlow	Read Replies (1) \| Respond to of 99985

Robert, LG is right about "knowing when to fold and when to hold a position." It is such a simple statement, but so hard to learn, and the downfall of many a good technician (as well as a good fundamentalist <g>). The following only pertains to a technical system......and it is my humble opinion only. You must know your "system", however simple or complex that system is, AND STICK TO THE RULES OF YOUR SYSTEM. An important part of having a "system" comes with knowing such things as your risk, and knowing your risk means that you know where you will get out should the trade go against you, and you must know this BEFORE YOU ENTER THE TRADE. AND STICK TO IT! No questions asked, no emotions involved. Your risk point could be set up based on a number of things. Maybe you watch support/resistance. Maybe you will only take a certain percentage loss on each trade, maybe a point loss. Maybe from your backtesting of this "system" (which is EXTREMELY important) you have found that there is a certain % drawdown with which to work with, and still be confident that the trade will go in your favor. Whatever. But whatever it is, you have to stick to that max risk, and take the loss if the trade goes against you. Please look at my post #1127, the free book from Omega goes into some of these principles. OK, so now you have your risk. That is a known (AND IT SHOULD BE!). Your profit is not known. You can come up with a projection based on your form of TA, and just go for that target. (For example, a P&F count might come up with a different target than a classical Edwards & Magee measuring count.) You can come up with a certain point or percentage target, and just go for that. But again, these things will be based on your backtesting, and if your risk/reward ratio is not in your favor, why are you even in that trade? There are systems that lose a greater percentage of the time than they win, but yet make money because the risk is small compared to the profits seen in backtesting. And this is where your exit point comes in. Again, you might just go for your target, and know from your testing that this end point works out just fine with respect to your net overall gain. Or, you might watch 5 or 60 minute bars to show you short-term support/resistance points once it goes in your favor, to extend your profit to the max potential. Or,.....whatever. But this all comes with knowing your exact method of trading, and I cannot stress the importance of backtesting. This is the only thing that will show you if your preconceived TA notions are of any use. A phase that everyone knows, or should know, is "take your losses, and let your profits run". Again, it a very simple statement, but one of the hardest to learn. Hope this helps, Debra