How I Set Stops and Profit Targets (Part 2)
06/09/2009 12:01 am EST
One of the concepts I work on over and over in my live morning charting sessions and when I mentor traders is that the market is always right! This sounds incredibly simple, but remember that to be a trader, you have to possess a certain amount of ego. It's easy to feel that if you think price has reached a place where it should turn, it will turn. But the truth is, there are many times when price has a mind of its own and your best-laid plans end up ruined. One way to limit the damage is to let price play its cards before you enter a trade. I mean that if you are looking to go short against a particular line, let price approach that line, dance with that line, and let price show you it is beginning to show weakness before you place your order to get short.
You can see price approached the black, down-sloping sliding parallel and pushed through it a handful of times. But it was having trouble making any further progress above the down-sloping sliding parallel. And after a handful of bars, it began to trade below the sliding parallel. When it broke and closed below the prior swing low, in my mind, price had played its cards and I was ready to try to catch another ride on the slide!
My orders were quite simple:
- I wanted to sell a re-test of the black, down-sloping sliding parallel at 1.0945.
- My initial stop loss order would be five pips above the recent swing high at 1.0978.
- If I managed to get short US dollars/long Canadian dollars, I would use a profit target of the prior lows, at 1.0794.
I double checked my math, put my limit sell order and initial stop loss order in the market, and then started my live “Market Maps” charting session.
|More tomorrow in Part 3.||Read Part 1 | Read Part 3|