Trade Management

  • Only exit when stopped at the point where trend reverses.
    • When you sell because you think that it has gone far enough, or the opposing forces are becoming stronger, you are essentially predicting the short-term movement of the price. Nobody can do that successfully. Let the fighting take place and resolve itself.
  • Ignore the immediate momentum, only the structure matters. The
    • Immediate momentum can be clearly down but it is just a temporary rock, it cannot alter the structure / shape of the stream.
    • Let the stream flow its natural course, there will be rocks along the way that attempt to impede the flow, but the flow will continue.
  • If you get stopped out when your stop is at a logical spot and price quickly went back to your entry price, re-enter immediately
    • The re-entry does not require your fresh entry criteria to be satisfied.
    • This is for the situation where there is a shake out that is quickly repelled.
    • The stop for the re-entry would be your original stop. In the case of a long, the first violation of your stop made a lower low. After you re-enter, if price hits your original stop again, it would have meant that price went up, made a lower high, came back down and hit your stop. So you would have a lower low and a lower high — a trend reversal, so you should not be holding your long position. Reverse for a short. By right it would also mean that after you re-entered, and you see a lower high forming, it is also time to get out of the position even before the initial stop gets hit.
  • If you get stopped out when your stop is at a breakeven level, you re-enter immediately if the logical spot level holds
    • In this case the re-entry price need not be the same price as the stopped out price, since the stopped out price was at the same level as the previous entry. Just apply the usual entry rules.
  • Re-enter immediately if you get shaken out (i.e. you manually exited your position because you fear the position going against you) by immediate momentum
    • If you are shaken out by immediate momentum, you have just made a trading mistake. Get back in immediately.
  • Support and resistance still needs to be obeyed (including major levels such as VWAP, day high, day low, prior day close). If a level is acting as it should, follow it.
    • E.g. if trend is down, you get to an area near a support level, tighten your stop to a momentum stop. Once your stop gets hit, place a re-entry stop order at the spot where it shows your countertrend exit is wrong.
    • A support is not a reason for going long in a downtrend. In a downtrend, a support means you should get flat, and wait for the support to be broken to get back in.
    • A resistance is not a reason for going short in an uptrend. In an uptrend, a resistance means you should get flat, and wait for the resistance to be broken to get back in.
  • If you end up getting out too early, stop chasing, wait for the pullback, be satisfied with the bit that you got because it is too risky to chase further.