Getting Paid to Trade by the Market (Part 3)

10/01/2008 10:02 am EST


Timothy Morge


A few of my students have put in a twist of their own on these same high probability entries, and although it’s all about ‘getting paid’, we’ve begun to call it the ‘Bread and Butter’ method of managing these trades once you get them on. Let’s see what it looks like:


Price came down, getting everyone long at the re-test of the Lower Median Line Parallel. After a few bars of congestion, price finally started to trade higher. As price moved higher, the prior Swing High and area of congestion was staring everyone in the face. IF this trade was going to fail, it would fail at a test of this prior Swing High and area of congestion—a prior regional top in the market. There is no sign that this trade is not going to continue higher to the Median Line at 143.75 [and perhaps move even higher!].

But the trade has been open for some time now and as it approaches the area of congestion, the trade has a potential 75 ticks of profit in it. We can’t let it turn into a losing trade now. One choice would be to move the initial stop to a break even stop. There is no market structure to hide any stop profit orders under [areas where other traders have left limit buy orders that will act as buffers to protect our stop profit orders]. Price has moved higher in a straight line, so the best we can do is move our initial stop loss order up to a break even stop order.

But if price trades back to break even now, we’ll have left 75 ticks of potential profit on the table, had our capital at risk for all this time, and gotten nothing out of this trade [in fact, we’ll still be paying brokerage on it!].

What else can we do? More in Part 4 tomorrow

By Timothy Morge

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