Wednesday, October 20, 2010

A closer look at Low-Risk vs. High-Risk exit on losing trades.

I find this to be the biggest grey area of my trading. Before I jump into trading with more capital I want to nail down this part. First you have to know what kind of trader you are and I've been playing high risk most of the time (especially in longer trades.) I'm going to document this trade through to the end and as I see it we might hold on this bearish divergence and even top 1200 SPX and I'll still be holding short. This is the high risk part of holding through a tight break in the divergence trend. (see chart below)

Notice in this chart that we had a break in the divergence trend on the 60minute chart. (Note, this trade is 30/60/daily time-frames). I believe the 60 minute chart shows the breakdown better and the full range of the trade history. One think to note about not exiting on the "low risk" exit and hold to see if the "high risk" breaks is that your chance to exit near the bottom fib. retraces lines (below 50%) decreases as far a profitability of the overall trade. As you can see from the chart below we are now on a new bearish divergence slope from the test of the existing highs of the indicators (CCI,MACD,ADX,RSI). Also you can see how the channel resistance breaks along with test of the previous highs on the indicators.

NOTE: I'm still short because the "High-Risk" criteria was not met (breaking existing high's on the indicators), even though it was very very close.

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