A typical example of a losing trade cut short

Here is a typical set up which I opened a position last week and cut taking the small loss the following day.

There is nothing out of the ordinary in the set up on this stock - there has been some recent price strength, a pattern of higher highs and higher lows emerging, combined with a consolidation period where volatility (as shown by my Volatility Factor indicator) has contracted.

Current trades update and more potential setups

In this recent post I mentioned a couple of potential set ups I was watching as well as including the charts highlighting some recently taken trades. Here is an update, plus a few more setups which I've added to my watchlist.

An example in trade management - the breakout stop

A few days back, I posted here about the potential long set up on Gold that was forming. Lo and behold, later that day price broke out.

Once you are in a trade, the next stage to consider is the ongoing trade management and the use of stops. So we will look at the updated gold chart (shown below) to see how I do this.

The breakout stop comes to the rescue (again)

In the second half of 2011, and in particular the last quarter, I was experiencing a frustrating time. The markets were volatile, and I suffered a number of trades where price initially broke out in my favour, only to sharply reverse and end up generating losses around a full -1R. This was because those trades had not been open a sufficient length of time for my trailing stop to start moving from its initial price level.

The trade that really stung was a long position in a small UK stock in November 2011. After initiating the trade, my open profits reached about +5R after only three days, yet my initial stop had not moved, based on the rules I used at the time. Then, price did a sharp about-turn, and three sessions later, I was stopped out for a full -1R loss.

After this happened, I retreated to cash and took a break to think.

Playing great defence

As a trader, I am always more concerned with how much I could lose on a trade than win. Good risk control certainly helps you with that, but there are some other ideas that can help you keep losses as small as possible. 

Here are some examples of playing 'good defence', as Paul Tudor Jones would call it, which have helped me as a trader.