A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
How To Avoid Getting “Washed and Rinsed” in the Markets (Part 10)
08/01/2008 12:00 am EST
For me, the good feelings came not only from taking a nice profit out of a hectic market: Four of my students also missed stepping on the land mines and caught at least a good portion of this same trade to the upside. Watching traders that I mentor one on one, catch trades like this brings me great joy and satisfaction. They didn’t chase price, they didn’t get turned around while price broke below and above and below the Energy Coil—instead, they waited for a high probability trade entry set up that they knew how to trade. When it began to form, they planned their trade and then traded their plan. This is the key to consistent profits in any market.
Let’s see how the day ended:
You can see that I might have squeezed out a bit more profit, but by using the Median Line as my target, I got out cleanly and then when price pulled back, instead of having my profit stop hit at a lower level than where I took my profits, I was out and looking at other opportunities. There would have been nothing wrong if I had exited when a profit stop was hit, but I particularly like getting out of my positions as cleanly and as quickly as possible once a trade has reached a logical profit area.
There are very important lessons embedded in this set of images and the dialogue attached:
- Always use stop loss orders and stop profit orders.
- Always plan your trades in advance and always trade your plan. Freelancing or chasing price as it makes new highs or lows can devastate an account.
- Trade using high probability trade entry set ups that you have seen repeat over and over and know the success rate of the trade entries you are using. Do your own research—don’t take anyone else’s word about the success of ANY technique. It is your capital on the line, so you must be responsible for it.
- The longer you are in a trade, the longer your capital is exposed to an unexpected market shock, so you need to get paid more as time goes on.
- Always have a realistic profit target and exit cleanly if possible. If your profit stop is hit instead, that’s part of the plan—it preserved your profits and may have saved you from turning a profitable trade into a losing trade!
I wish you all good trading!
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