How To Avoid Getting “Washed and Rinsed” in the Markets (Part 8)

07/30/2008 12:00 am EST


Timothy Morge


Rather than buying or selling a break out, I look for high probability trade entry set ups, ones that repeat over and over and that have an associated statistical probability of success of well over 65 percent. I wait until I see these set ups form and if none form, I continue to wait. I always trade with a plan and use surgeon-like money management, using stop loss orders, stop profit orders, and limit buy or sell orders to conserve capital while a plan matures. I never chase price. If a set up doesn’t appear, I wait patiently, because eventually, one WILL appear. Then I plan my trade and execute my plan.

In the chart above, you can see that after many traders got stopped out of their original long euro FX position and then got short and then long and then short again as price traded below, then back above, then back below the trading range, I am just now starting to see signs that a high probability trade is setting up. I’ve spent none of my capital and none of my emotions in this hectic directionless trading. I am calmly waiting for a trade set up that I recognize.

After the first bar tested the Lower Median Line Parallel and closed on it—leaving me no clue whether the sellers or buyers were in control—the second bar also tested the Lower Median Line Parallel. Note that it broke below the line by about the same distance and then closed above the line with good separation—a sign of strength, and one that tells me there are now buyers in the market.

More in part 9.

Timothy Morge

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