How To Keep The Edge
One of the key ingredients in
maintaining the edge is keeping your average loss small in relation to your
gainers. Of course you also have to take the high probability trade in the
first place, but it’s the money management part that keeps us in the game when
the market starts acting ‘up.’
In the TM
chat today I happened to point out what I considered a high probability
trade in the Spyders
(
SPY |
Quote |
Chart |
News |
PowerRating). The index proxy was testing prior highs, after a
gap opening up. The intraday action had the ETF forming an intraday reversal
pattern known as a
FlipTop, with further resistance in the form of the 1.25 Volatility Band.
The short triggered on the fourth bar using the
intraday 5-Minute chart, so now it was just a matter of maintaining our edge.
Two bars later, the trading edge was captured.
Unfortunately, the position did not add to the bottom line, but the long-term
edge was maintained. By taking the high probability trade, and then keeping the
loss small (in this case under .25), we were down, but certainly not out. More
importantly, we could now focus our efforts on finding the next trade with
long-term edge.