Tuesday, March 17, 2015

A profitable trade finally finishes

Today saw the end of one of my profitable trades which finally triggered its stop. This yielded a +6.57R profit in just over 6 weeks, which is pretty good. The chart below shows the trade. I'm also pleased to say that some of the other traders in our group also got into the trade and profited accordingly.

The set up had the typical characteristics that we look for, with a clear breakout level, with a pattern of higher highs and higher lows starting to form. This was combined with a low level of volatility and a low 2ATR reading, which is used for calculating the initial stop distance, and consequently the position size.

As we can see, the once price broke out it didn't look back. Those who would have waited for a pullback in price to test the breakout level (to test that prior resistance is now acting as support) would have missed out on the trade.

Once you get into a position like this, then the only price level you need to consider is your trailing stop, and it only takes a few seconds to read the chart, factor in the typical spread and update your stop as required. As trend followers do not use price targets, we are only concerned with controlling the downside (risk), and do not place any restrictions on the potential upside (reward).

Trading in this manner means that you have to have patience and discipline in letting the profits run, and to avoid snatching relatively small profits for fear of losing them. If you do that, then you will never get the big winners that trend followers occasionally get, and which are needed to help generate the overall positive expectancy of the approach. However, if you are able to develop those attributes, then you can generate decent profits for not a lot of work on as day to day basis.

Now that the trend is over, it is simply a question of banking the profits, logging the trade in your records, and moving onto the next potential set up.

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