Wednesday, April 3, 2013
In an earlier post, I outlined how you could trade both directions as long as you exit on the close of the entry bar. So the question becomes, why would I ever want to only trade with-trend? Why do I insist on taking only a few good trades and let most trades go by?
What is the point in taking only a small number of trades? Isn't it better to also add those little trades to pad my profit? Won't all those small trades add up?
Today's action illustrates why all those little trades do little or nothing to your bottom line for most traders. For example, today I added five counter-trend trades at reasonable setups:
#2: Multi-leg fBO with strong signal bar
#7: TCL OS
#10: Strong signal bar
#11: small trend entry bar (occasionally these are followed by BO bar)
#12 possible W
Even with the express intention of exiting on the entry bar, three of the five trades were losers.
In contrast, only one with-trend trade, #3 was a loser. This was a news related experimental trade. Trade #9 was a scratch and was an accident.
The important take away here is that if I only took #1 and #5, my cumulative profit would have been larger.
A second observation is that the longer you trade on a given day, the worse your performance gets. For example, My peak profit was after trade #6. I gained nothing by trading for an additional hour.
So what's special about #1 and #5? They were clearly at the trendline. Their superior location is obvious even without drawing an explicit trendline.