Trading lesson # 666
A few hours ago I posted this setup. Now I’m going to show you one way (not the only way) but the mental process I use when I’m in a trade like this. Now I have to admit, I thought that yen futures were going to go down, in other words, I WAS BIASED. Now because biased traders are losers, I posted the setup, both LONG AND SHORT. Now I noted both the long and short potential of this setup (its an obvious triangle) and put in an order to buy at the high and sell at the low.
That much is easy, price broke up to the upside, got us long. We leave the short order in to act as a stop.
What now? I tell you what I don’t do! Sit in front of the screen. I go away! I set an alarm and come back. Experience tells me that whatever I get from sitting in front of the screen, I lose by impulsive stupid premature exits.
In one hour’s time I sit back at the screen and I ask myself the following questions
Lets look at how this plays out. Period 1, we have entry, lets ask the questions.
1) Has my trade made 1R? No
2) Have 3 periods elapsed ? No
3) Is there a setup in the opposite direction I need to prepare to take? Make sure I enter the order in the system. Yes, a FAKEOUT SELL (see yesterday). Enter a sell order in the system so if our stop is hit we WILL BE SHORT. Triangle breakouts are notorious for false breaks, so this makes sense.
4) Is there some upcoming spike high, fib resistance, momo divergence (on whatever indicator I use) or bollinger resistance that would cause me to get out of the trade early? If so would I take profits on a limit order, or tighten stops, possibly to a lower timeframe? Yes, that old spike high will trigger stops, there is no way to tell if price will go higher or stop and reverse. Prudence dictates that at least partial profits should be taken at the old spike high.
OK at the end of period 2 it looks like this. I moved the stop to the bottom of the bar because the trade had made 1R, and a cautious trader would be scaling out here:
2) Have 3 periods elapsed? No
3) Is there a sell setup? No
4) The upcoming spike high remains, have limit order resting in the system to exit.
Period 3 We move the stop up to the low of the recent bar to protect profits.
Period 4) Our limit order is hit and we have a potential sell setup