Monday, February 17, 2014

A huge trend to start 2014

In this post a couple of weeks ago I talked about Richard Dennis's assertion that 95% of his profits came from just 5% of all his trades, and compared it to the results generated here.

Well, at the moment, several traders I mentor hold one current position which clearly falls into that 5% category.

The charts below show how this has occurred. This particular stock I had never heard of, but was picked up on our scans over the Christmas period. After getting an entry signal in early January, this stock took off like a scolded cat, before pulling back, consolidating, and then going into another sharp move upwards.

I've shown both the daily and weekly system charts, which clearly show the price move, as well as the contraction in the Volatility Factor indicator which I talked about here.

If you were still fully holding your original position, then this single trade has currently generated a profit of more than 30R in about 5 weeks. Now, in this particular instance partial profits were taken after about a week. 

There was a significant increase in the open risk on the trade, and there was also a another technical reason on the chart (not shown here). Therefore, the uniform risk exit which I refer to in my e-book was applied. However, even when price fell back after the initial surge, the remainder of the position has been kept. As a result, the accumulated profits amounts to approximately to a 'mere' 25R.

Ed Seykota sings about how "one good trend pays for them all" here. This is a perfect example of how a trade such as this can give your overall returns a big boost, cover a lot of small losses, and leave some profit left over, giving the system its positive expectancy.

Now it is simply a question of keeping hold of the position until the trend finishes, and an exit signal is given.

Of course, not all trades and similar setups end up like this - indeed, the majority of trades fail with small losses suffered. But by following the principle of cutting losses short and letting profits run, combined with good risk control, every once in a while you will find yourself in a trend like this.

If you would like to know how we find such set ups and then trade them, then consider either the e-book, 1-2-1 training or the mentoring programme.

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