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Hi
Recently I posted privately to a some newbies.
In the course of the post I had reason to
discuss my views on the USDM (DMH8 futures).
At the time I said "they should rely on
the judgement of their own mind" and that
"trading had less to do with being right than with
managing a trade". I also said that I create scenarios
against which I have a standard to judge market
behavior. In this way I often exit positions long
before I am stopped out.
The current price action of the USDM is a good example
of what I do. (For those that trade futures, you need to
invert direction). It is also a good example of using
"the rule of 3".
e.g. if I say the US$ trend is up, you will see DMH8 go
down.
As at 26/1/98, because for me, $ trends, up to
the weekly, were up, I executed long trades at 17853.
Target for my second third was 18910 - 18665.
First resistance was at 18434 - 18320.
I exited the first third at the low 18300's. Not only
did that zone represent resistance, it was also the area
that allowed me to break even on the remaining 2/3s if stopped
out.
This week I expected the upmove to continue after setting the
weekly low on Mon/Tues. When at 12:00 AM (Sydney time), the
market started to break, I knew the probabilities indicated
I was wrong about this week's direction and took out the
second third in the high 18000's. If I was wrong about the
week's direction, it was probable I was wrong about the mkt
getting to the 18910 zone.
The stop on the remaining 1/3 has been raised so that if I
am stopped out, I should lose no more than 50 points (allowing
for slippage) on the last 3rd.
What if the mkt stops me out and then resumes the uptrend? I may
or may not get back in depending whether or not a get a zone
setup and trigger.
What happens if the mkt rallies from here. The probabilities, based
on the tools I use, suggest this is unlikely; but if does occur, I
still have 1/3 of my original contracts.
For me preservation of capital and consistent profitability is most
important. As Steidlmayer used to say "trading is 10 months of grind
and 2 months of gravy. If you can stay ahead in the 10 months of grind
(or least lose very little), the 2 months of gravy will make you a very
successful trader"
regards
ray
R Barros
101/25 Market Street
Sydney NSW 2000
Australia
e-mail: ramon@xxxxxxxxx
tel: 61 2 92673470
fax: 61 2 92673478
ray
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