Friday, June 29, 2012

All good things will come to an end...

Wnen a trend ends and gives an exit signal, a good trend follower will unemotionally close the position - none of this "I'll give it a bit more room, to see if reverses back to the direction I want". Better still, your stops will already be set, and they will simply take you out of the position automatically. Remember that in a classic trend following system this is the only way that you should exit a position - no human intervention is needed (or wanted).

It is then important to bank those profits, and then focus your mind on the next trade. Today, some of those profitable trends are threatening to now reverse and generate exit signals. If they do, so be it - onwards and upwards. The good thing about closing a batch of profitable trades is that your equity will have increased, meaning you can take larger positions (but at the same level in terms of percentage risk). Simply rinse and repeat, and the magic of compounding will lead to trading a big account.

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