This entry was posted on Wednesday, July 4th, 2007 at 7:58 pm and is filed under Education, Trades, chart patterns. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Last week I had thrown out to you a swing trade that had triggered in my swing trading system. This system is throughly backtested and has clear entry and exit rules. The trade in ETFC is a good example of some key trading concepts that cannot be stressed enough when system trading as well as discretionary trading.
As you can see noted with the red arrow we are presently below that entry price. The exit for this trade is Thursday’s open. No ifs, ands, or buts. An exit in system trading is an exit. PERIOD. Most traders do not seem to grasp the concept of closing a position before it goes profitable. What you must understand is that I have hundreds of thousands of trade examples in my backtest data and I certainly am not able to assimilate all of this information on a trade by trade basis by eye. In the end 65-70% of all trades close profitably. The data speaks for itself. The exit I have passed along to you for this trade is quite simple. Exit when price closes above the high of the previous 2 bars. Keep an eye on those in any timeframe you may monitor.
Another broad concept I want to convey that maybe you had missed. This trade had occurred during weakness in both the major market indexes as well the stock itself, ETFC in this example. These are even higher probability swing plays when looking for the when and what to swing trade. I know this flies in the face of conventional swing trading wisdom - but again I can prove it outperforms those conventional methods by far based on my extensive backtesing in all of the various market conditions.
So in the end I passed along a trade that had about a 85% chance of winning. But dang if it didn’t (well maybe it will gap up tomorrow). Which leads me to the last lesson. No matter how much data, backtesting, and confidence you have in a trade - it is NOT a sure thing. Based on this knowledge you must spread your trades and risk across various systems and market positions. This is absolutely critical to have enough ammunition for the next fight.
In that same post I had also posted the SP500 chart noting its consolidating pattern , where you had a confluence of a few patterns of a bullish and possibly bearish look. What ultimately happened was what I thought was the most likely occurrence. A run through the previous wave low and taking out stops of the players looking for a high risk/reward trade. Classic. (Compare chart to previous post)
Let’s see if that upper trend line and a general resistance area slow things down this week and next.
And for those who have asked when my live futures trades are coming again all I can say is soon 
Have a Great Night!
Dave Johnson