My advisories had a good day on Tuesday, calling the breakout in the stock index futures, the Yen, Canadian Dollar and a number of physical commodities. Some days it’s tough to write the comments for Swing Trader’s Insight-there are times when the Taylor cycle isn’t clear, or the markets don’t do anything that’s tradable.
It’s why I watch so many markets; I’ve learned to not pay attention to markets that aren’t doing anything that fits with how I analyze the markets. Every once in a while a day like today comes along, and reminds you why you should always pay attention. A large percentage of your profits often end up coming from a small percentage of your trades.
My broad brush view of money management is that with most systems there are four types of trades: small winners and small losers, and big winners and big losers. Many systems end up with a large percentage of trades that are either small winners or small losers; in the long run, these end up roughly offsetting each other.
This leaves the big winners and the big losers. These don’t come along so often. Further, it is my belief that most large losses are preventable. They are usually the result of a trader not following his own risk management rules.
But avoiding the big losers is actually the key to profitable trading. A relatively small percentage of trades result in big gains. By avoiding big losses, you have mostly small winners and losers, which offset each other. By avoiding large losses, you are left with the (few) big winners; it is these big winners that grow your account.
Hopefully today was one of those “big winner’ days for you.
On another note, the Taylor Trading Technique tells us that the day after a market makes a big move we should anticipate a move in the opposite direction, as the market takes away from those that got in too late or stayed too long.
As such, we would expect to see a rally in stocks tomorrow. I would be careful with that trade tomorrow. In a “normal” market, I like to take these trades. However, I’m not sure we are in “normal” market conditions; it appears we’re entering a period of heightened fear and uncertainty, and possible longer term trend change “inflection points”. As such, I would be quick to take profits on countertrend trades for the time being. Remember, the first goal of the trader is to stay in the game, to do so, adjust your trading to the level of volatility.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
