phantom trading!

life of a budding trader is full of troubles:

trouble 1: did not have a method, so kept losing.

trouble 2: had a method but did not follow it, so kept losing

trouble 3: followed the method but interpreted situation wrongly

trouble 4: interpreted situation right, but trade still went the wrong way!

--

trouble 1 is a training issue.

trouble 2 is a discipline issue

trouble 3 is a practice issue

trouble 4 is not your problem. it is an operator issue which you can do nothing about!

majority traders on the way to immortality think
that if they learn and practice enough
soon there will be a time when they will be expert enough
to be able to interpret any chart absolutely correctly!

this doesn't happen
and will never happen
till the market waters have crocodiles called
operators!

(and the day there are no operators, there will be no market!)


this means
that trouble 4 will always be there!

so, how do we safeguard against this one?

stop loss?

not a bad option!

but when the stoploss bell rings
it is not musical at all!

and sometimes
the adverse movement is so fast and big
that by the time loss is stopped
it is already big enough to hurt!

is there a better option?

fortunately there is one!

i recently came across this while surfing net
and it is amusingly (but aptly called)

"phantom rules"

by art simpson

there are two phantom rules

rule 1 :

WE ARE WRONG UNTIL PROVEN CORRECT!

what this means in simple words is

= if your trade doesn't go your way within a few hours, square-off!
keep a position for three hours unless they have proven to be correct by that time. otherwise, something is happening underground which you don't know or have not taken into account! put in yet another way, assume to be wrong if you are not proven right "soon enough". don't ever let the market tell you you're wrong. because by the time market proves you wrong, it might be quite costly!

this way, you may be missing out on some trades where things went your way albeit late, but you will always bleed negligibly when things did go wrong! besides, who stops u from re-entering once the position is prove right again?

according to art simpson
".....trading is a loser's game. he who loses best will win in the end!"

keep your losses quick and small.

in trading, i have experienced that possibilities are high when probabilities are low. indicators tell us probabilities and hence act as the unintentional agents of the operators.

in art simpson's words

"the correct way to control positions is to only hold them once they prove to be correct. most trader do the opposite of what is correct by removing positions only when proven wrong................in rule 1 it is important to understand we are saying the one criteria for removing a position is because it has not been proven correct. if the market does not prove the position correct, it is still possible that the market has not proven the position wrong. if you wait until the market proves the position wrong you are wasting time, money and effort in continuing to hope it is correct when it isn't. so, remove the position early if it doesn't prove correct. By waiting until a position is proved wrong you are asking for more slippage...............you don't go buy clothes, take them home and wear them until they prove to be wrong for you. instead you try them on and make sure the have a proper fit and look before you buy them...........we must remove the emotional elements, fear and greed, as quickly as possible in trading. If you can do it before you put a position on, you have a good start.

and here is the rule 2:

PRESS YOUR WINNERS CORRECTLY WITHOUT EXCEPTION.

in art simpson's words

".......without a correct method to press your correct positions you will never recover much beyond your losses. you need rule two to ensure you have a larger position when you are correct. you always want a larger position when you get a great move or trending market than when your position isn't correct..................rule 2 does not mean just because you have a position in your favor that you must now add to that position. you must have a qualified plan of adding to your position once a trend has established itself."

i have found one such way : whether 5min chart or 30min chart, once a trend (whether small or big) is established, the best time to add to the position is when william%r touches "opposite" extreme while rsi hasn't.

and these positions can be carried till price cuts sma 34 from above or till rsi failure-swing-point, etc.

being in the right trade is important, but equally important is staying in the right trade for sufficient duration.

in simpson's words

"trend traders will get larger when they are correct but day traders will start larger and get smaller when they are wrong. day traders can be large when they are wrong but trend traders will never be large when they are wrong. this is due to the nature of a loser's game for day traders.........rule 2 must be used if you expect to make money in the long run........"



(for further understanding
http://www.webtrading.com/phantom/preface.htm)