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How to approach trading - Part 5

Follow the Markets

After you've determined your strategy and the market or markets you will trade, you can start following the price action. It is important to follow each market consistently and see the trading opportunities as they develop. Jumping around from one market to another often leads to missed or late execution of your method. I think it's important to let the market tell you what to do. I'm sure many of you have heard the saying, "The trend is your friend." There is truth in that, but not all good trading must follow the trend. Since these days markets trend so little that perhaps we should come up with a new saying: “The swing is your thing.” How about this one: “The setup is my get up.”

I don't generally concern myself a lot with how much a market is going move overall. But I am concerned with how much the market will move minimally. I want to guarantee myself a minimum move a high percentage of the time. I'm satisfied with being on the right side of the trade. However, I'm constantly asked; "Where do you think prices are going?" or "When should I get out of the move?" My answers are usually; prices will move in the direction of the trade—they will go where they want to go." And "Get out of a trade when it quits going your way, or you’re satisfied with the profits you’ve made." A potential objective number of points, ticks, or pips are most useful when you are trying to decide which of several different markets to trade or when deciding how much of your capital to allocate to a particular trade.

Stay on the Right Side

It is important to stay on the right side of the market, buying when it is going up, selling when it is going down, and staying out when it is not going anywhere. But again, this is a generality. There are plenty of traders who make their money when a market is not going anywhere. Option sellers who straddle and strangle love markets that are going nowhere at all. In any event, staying out is often easier said than done.

Sometimes you'll have to be pretty nimble to stay on the right side of the market.

It's important to not be committed to a direction when the market tells you otherwise and be willing to allow that the market is never wrong.

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Friday, 20 October 2017

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.