Price Movement Resolved Into Oscillations
Submitted: 28 Oct 10 14:24
Last Updated: 28 Oct 10 14:27
 

Price Oscillation

The chart shows the E-mini Russell 2000 that I trade everyday. In this chart, the 2 red arrows denote the 2 down oscillations of price. The price bars have been colour coded with the Ergodic Indicator to indicate the start and end of each oscillation. Similarly, the 3 green arrows denote the 3 Upward Oscillations of price. Each Up move starts with the onset of blue bars, and red bars will be the retracement period. The key here is to know WHEN the oscillation is beginning and with the help of a longer trend chart, one may take trades based on these smaller oscillations.

Another thing to note here is knowing when the direction of price is highly likely to reverse. In this example, the price break at 600.7 disrupted the down move and the up move is confirmed ONLY by the first green arrow.

Many traders trade based on what is show only by their indicators. The problem here is that indicators are always lagging. Unless you are trading on a longer time horizon, and the momentum allows a more sustained move, trading just by looking at indicator will very often make the trader enter the market too late. What I did here, was to look at price FIRST and letting the indicator marks the start and end of each move. As long as the support and resistant levels are intact, the price will tend to oscillates in the same direction and you may take trades accordingly in conjunction with a larger trend chart.

 

 

 
Trader = Gambler?
Submitted: 19 Oct 10 14:27
 

Most people who are uninitiated into the world of trading often think that trading is the same as gambling. If you look at how many people had lost money in the markets, and picking up stocks or taking trades without any substantiating reasons, it is natural you may think that trading is no more than trying to guess what’s the number on the next die throw.

If a trader takes a trade by pure guesswork, then how do you explain the fact that some traders are able to make money from trading consistently for years? This handful of traders cannot possibly rely on luck.

What these winning traders possess is a set of rules that help them determine WHEN they should take a trade. The set of rules allows the trader to take a trade that has a higher chance of winning. The key idea here is about probability. The trade may still turn bad, but if say the trade has a 70% of success based on research and testing, then typically there will be 7 winners out of every 10 trades. If you look at gambling, the Casino, in this case, has the odds calculated such that the house will have an edge of 4-5% over the player. As long as the players keep playing, the Casino will win in the long run.

If the trader has the discipline to carry out his vigorously tested trading plans religiously, he will be playing AS the house, and the numbers will takes care of itself in the long run.

 

 

 
Where Do You Place Your Stop Loss?
Submitted: 06 Oct 10 17:11
Last Updated: 06 Oct 10 17:12
 

For most traders, the stop loss is the safety net of your trading account. We all know that very often once we are in a losing trade, we are powerless to take the loss there and then and get ourselves out. By placing the stop loss, it prevents our emotions from taking.

There are many ways to determine where you should place your stop loss level. Some goes by a fixed percentage movement of the market price, while some place it at an offset level from their entry price.

For me, I use the market structure to determine where the stop should be. In a series of up moves when the market rallies, I look at the prior support levels as key price points. If I am to enter a trade (say at 510.0 for Emini Russell), I will place my stop loss at a price JUST below the last support (say 507.8 is the support, the stop loss will be at 507.7) as I believe that if the price is to continue its upmove, the probability of price breaking the last support is very low. And IF price is to break the last support, the chances of it going my way is very much diminished and that reason is enough to tell me to take the loss.

Taking a loss is never easy. But I am a firm believer of capital preservation as being the key to long term trading success. By accepting the last loss quickly, it frees you up to take advantage of the next opportunity.