Opening position

I beg to report that right moment of entеring a market doesn’t exist. It is more important how do you manipulate with a position size and when do you exit a trade. A lot of spears were broken in discussions about how to define optimal signal to open a trade and to close it. Dr. A. Elder wrote under this subject a special work which is named Entries & Exits with examples from his disciples’ real trading. Sixteen traders give in this well-illustrated instructive book two deals: one successful and one unsuccessful which were the most memorable from their practice. Doctor comments each of them from his point of view, showing with this his own simple but effective signal system.

Dr. Elder is a highly experienced trader who has a style which I can call sniper’s style. Alex chooses a victim thoroughly, looks into an aim and in case to shoot is not suitable he waits until the financial tool turns sideways and tarries. Ba-bang! And a bullet flies into a target and Dr. Elder gets a right to his part in sharing of a catch. Sometimes a stock or a futures stays alive having staggered and funny runs away. Never mind, bullet is lost but there are plenty of fat rabbits in the American trading fields.

Well, there is no author who resisted the temptation to discuss a timeframe, or a combination of moving averages, or a momentum, or about  a confirmation of purchase or selling signals. I won’t. Like an automatic weapon and salvo fire follower I prefer to change a size of a position when I suppose I should do it. Generally I’m always in the market. From time to time I go to zero if I feel the time to topple over and carefully try to move against dominant market movement. My favorite market condition is a saw. When market is in flat, traders who trade along a trend, withstand it badly, they like hedging, they bear loss. I use saw tactic at that time and cut them taking a bite of income of marketmakers and followers of trading robots which are adjusted to the signals of indicators. Yes, sometimes I make mistakes in forecasts and get loss then market rushes towards with roaring. Well, in that case I’m waiting until a beginning of turning signals which are portents of saw and get back that belongs to me by increasing of a position. It happens sometimes that market goes on movement having finished a pause. Ok, then I continue to follow a chosen victim by trot short having bitten pieces off while it stops. Sooner or later turning comes. I’m sure that trader’s qualification lies in skill to balance position size to use options and futures and to receive a profit when market goes against the direction of your initial deal. Naturally, you can go to zero more often, to topple over every now and then but it is scalping which is wearisome however to practice in scalping is very useful.

In fact then direction of market trend concurs with my forecast that happens more often, I don’t pick a total possible income. It can be explained by the fact that my signal system works rapidly within short time periods that lets me left a game fast and get a profit. Sometimes it happens too rapid while the stock keeps its moving further. In that case I have to accept it as my shooting of sets’ method is good in in-fighting after all while sniper’s weapon is more effective for the longer distances.

The sense of my trading style is in regulation of the position size depending to the accumulation of the signals using multiple partial opening also known as fractional enter and exit the trade. (see article “Accumulation of signals”). The first step consists of the definition of maximum possible position for the session, it depends on a level of risk you can afford. This level in its turn depends on your goals and common notions about trading (see my inlay “My beliefs about trading”). With a second step it is better to appreciate possible price range for current and next trading session because recoilless and long-term movements can always take place in the market.  By the third act you should presume an action plan in case of the market will go against you, allocate permitted position to levels which can reach a price and think over the acts on income fixation in case the market will be at your side. And finally divide the part of the fund which you assigned for one or another price level into consistent row of orders, like bullets in a cartridge belt. In case if prices reach chosen range, at least some part of orders will work despite of any whipsaws. Besides if to use this fractional method to dimension a position you will have more guaranties not to stay outside the market watching favorable signals of your signal system.

In the theory, for addition of the position you can use the same tactic of signal accumulation as for exit or reducing. But as the rule, when you need to open a trade, the market dynamic radically differs from the conditions which are comfort for reducing. The optimal situation for every trader in fixation of the income is when prices reaches range you chose or turning signals were formed. It happens in moments of wide price impulse (see article “A wide movement”). If you decided to enter the market along the trend then it will happen in periods of vagueness while correction to your trend hasn’t start yet or is already over, in other words during a saw. But most of indicators tell lies in a saw as they are mostly trend’ ones (see above mentioned article) and objectively define optimal price level for increasing of the position is difficult. Trend-traders often use indicators of bigger timeframes as filters of the signals than indicators of the timeframe they’re trading. Signals come late and you have to hurry up to reach the prices. What’s an optimum entrance here - if you need to be in time!

Happy exclusion is a trick which I also use: to use recoils which are not very notable in your timeframe and not dangerous for trend to increase position. In that case you can operate by workable system of turning signals if go to smaller timeframe. You can also use base system which you will have to adjust or to project a new one.

Do you know what? I come to a conclusion that I have only vaguely guessed before: trend indicators show certainly turning signals only. Trend-following signals mostly come late on them or they are statistically occasional.

21.02.2014  bvt