
Simple Strategies for Short Funded Traders
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Traders Helping Traders E-zine for the week 2-20-2007 - Test Drive Edition |
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Part One - Erich's Trades |
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Question: Can you suggest how I should set profit targets and stop loss orders on a trade? Answer: Wow, this is a big question! In fact, you could write an entire book dealing with setting profit objectives and stop losses. Let me give you a few guidelines to follow that might help you out. First, setting profit objectives. Being a support and resistance technician I am always looking for support or resistance areas that are likely to reverse the market. If you are trading a reversing market, one that seems to be retracing part of a previous move, the easiest way to set a target is to use Fibonacci ratios (38, 50 and 62%). The market will have a tendency to move towards these areas before reacting. By concentrating on significant support or resistance near these retracement areas, I can narrow down my search for prices that are likely to affect the market. If you are trading a trending market, then you will have to look back in the history of the chart, sometimes consulting a longer term weekly or monthly chart, to find areas of support or resistance that look like they might affect the market. If the long term chart is also retracing a previous move, you can once again use Fibonacci ratios to give you an idea as to where prices are heading. Keep in mind however, that the longer term charts will take longer to reach their objectives than the daily chart. When choosing a stop loss, I will again focus on using support and resistance to help me find suitable areas to limit my risk. In a trending market, the best place to trail a stop loss is beyond the pullback areas that develop as the market trends. These are significant as they are proven areas of support or resistance. Unfortunately, the pullback moves can sometimes be quite large, and leave too much money at risk. Therefore we sometimes need to find closer support or resistance lines to use as stop losses. Occasionally, the high (or low) of the day will form a good stop loss area, especially if it coincides with other support or resistance. This is usually the least amount of money you will be able to risk on a trade, without having to increase the riskiness of the trade by placing exit stops within the daily range. If you do need to enter the daily range, in order to minimize the risk enough to make the trade worthwhile, consider placing your exit order beyond the closing price. The closing price will often form a support/resistance area as the market winds down, so this can be an alternative; however be aware that placing your exit order within the market's daily range does make you more susceptible to whipsaws. Erich For the archive of hundreds of priceless homework articles and Lessons du Jour, please join us at http://www.supportandresistance.com/subscribe.html Got a question that
needs answering like an itch you can't scratch? Send it along to me at
Erich@tradershelpingtraders.net
and I'll be happy to try and clear things up for
you. |
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A Sampling of the Markets we're covering this week... |
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The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here. The rest of the Markets in all sectors are covered in the Subscriber Edition.
Grains Overview
Soybeans
Metals Market Overview This is only a small sample of the markets we cover!For a detailed analysis of ALL the market sectors, with explicit charts, entries, exits, stops, risk/reward ratio, potential profit, (and much more) please join us at http://www.supportandresistance.com/subscribe.html If you have any questions at all about any of these chart lessons, please feel free to ask at the futures trading forum or click here to email us. You can also chat with Erich and Tom live every Wednesday evening at 9:30pm eastern in the HotComm webinar room. Click the link for details about the Support and Resistance Trading Webinars. Erich's Updates for rest of the week - watch the blog.
Take
care, and good trades to you for the coming week! |
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Homework |
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No homework this week!
For the archive of hundreds of priceless homework articles and
Lessons du Jour, please join us at
http://www.supportandresistance.com/subscribe.html |
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Pick of the Letter |
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Futures Trading is Risky! Never trade with money you cannot afford to lose! |
THE DATA CONTAINED HERE IN ARE BELIEVED TO BE RELIABLE BUT CANNOT BE GUARANTEED AS TO RELIABILITY, ACCURACY OR COMPLETENESS; AND AS SUCH ARE SUBJECT TO CHANGE WITHOUT NOTICE. TRADERS HELPING TRADERS AND IT'S ASSOCIATES WILL NOT BE RESPONSIBLE FOR ANYTHING WHICH MAY RESULT FROM RELIANCE ON THIS DATA OR THE OPINIONS EXPRESSED HEREIN. DISCLOSURE OF RISK: THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK FUNDS SHOULD BE USED. FUTURES AND OPTIONS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT IN A FUTURES POSITION. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. ONE OF THE LIMITATIONS OF HYPOTHETICAL
PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF
HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL
RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE
IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO
WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF
TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL
TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS,
IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH
CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING
RESULTS. Traders Helping Traders Publications, including this one, are all copyright Traders Helping Traders, all rights reserved. -
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