You are on page 1of 1

As for "risk aversion", that is no longer a factor. You're 75pts in profit.

Ther
e is no risk. Any concern about risk means that you're thinking about your trade
, not about price behavior. Focus on and correctly interpret price behavior and
the "risk" takes care of itself.
Granted, if one is new to this, these statements sound great but have little pra
ctical value if the trader's beginning to sweat. There is a middle ground, shown
here again with the hourly and a tighter DL (this helps to highlight the differ
ence between a demand line and a trend line). Yes, the tighter the DL, the soone
r one will be "stopped out". And the tighter the DL, the more likely the trader
will be to miss a continuation. But that's the cost of trading out of fear.
And here is where the trader has to do some grunt work. And he has to do it hims
elf because the results will vary according to the instrument traded and the int
erval used.
Start by collecting at random twenty charts of whatever you're trading.
Plot the DLs (or SLs, if the trend is down).
Note where price breaks these lines.
Note what happens when price breaks these lines: does it move laterally or does
it move in the direction opposite to the previous move?
If it moves in the opposite direction, at what point does the probability of a r
eversal increase and the probability of a continuation decrease? Once you know t
hat, "instinct" is irrelevant. You have statistics on your side and can make rea
soned decisions, not gut reactions arising out of fear. If the results are uncle
ar with twenty charts, select another twenty. A hundred is more than enough.
A lateral range is suggested the same way a diagonal one is: two swing highs wit
h an intervening swing low, or vice versa. The upper limit was "established" on
Monday. The intervening swing low at 22.75 was not tested until yesterday, and p
rice dropped all the way to 14. The upper limit has since then been "clean". The
lower has not. But as the trades are taken off the upper, the lower really does
n't matter unless one isn't trading live and has to set an exit at some number t
o be tripped in his absence.
The focus should be on resistance and the location of the danger point, not on h
ow textbooky the range is. The trader then has to decide how much he's willing t
o pay to play, the "price of admission". If he's not willing to risk anything, t
hen he's better off passing on the trade and collecting data instead.
Trading the entry live makes a lot of difference. Live one can easily see the fa
ilure at 56 at 0945 NYT, even if one is watching only the houly. There is a ret
on the 1m at 0950, but, if one isn't trading live, it isn't going to do him any
good. (An entry below this would mean a 7+ pt risk)