At a recent trading convention two well known traders discuss the ins and outs of trade exits. Read on to find out how successful traders make their trade exit decisions…

Mark McRae is surprisingly forthcoming about his worst trade experience when asked.

On one occasion he explained, I was long on the euro, and I was long for quite a large amount – and I got a visitor come in from nowhere. So instead of closing the trade – (or I thought I closed the trade by going short)- I actually bought again. So after a few hours, my visitor had gone. I can’t remember the exact amount, but I was down $20,000 or $30,000 on this trade, and it was one of the worst trades, not because of the amount I lost, but because I couldn’t believe I was so silly about not checking it. With this particular trade, I left it, for about four hours and watched it, and eventually got out with a loss luckily!

On the other hand, one of his best trades wasn’t in the Forex market. It was in the indexes where America had a surprise rate increase. Mark just happened to be the right side of the market. “I couldn’t believe it. It took me about five minutes to figure out why I had almost tripled the amount I was trying to get that day, (which was very nice of course). I think that was one of my favorite trades. I was on the phone to the broker, and I was arguing with the broker about the price that he had given me. Actually it was the NASDAQ. And he said to me, they’ve just changed the interest rates. Do you want in or do you want out? He said you get ten seconds. I said, ‘I’ll stay in.’ And I didn’t really know it, but I was trying to figure out in my brain whether this was good or bad, but I said I will stay in, and then there was this huge leap, so that was definitely one of my nicest trades” Mark advises.

So How Does Mark Decide When To Make A Trade Exit?

When something unexpected like the NASDAQ experience occurs, it’s almost like a windfall. He then went on to explain that he got out about five minutes after seeing the peak. It wasn’t technical at all, he just thought whoopee, this is good, and closed the trade.

But that’s not how he trades now. Mark has refined his level of patience now. “You know, the big fluctuations don’t frighten me anymore. And also, I don’t know if you find this, but I’m very often on the wrong side of the market when I go in. In other words, I don’t go into the market, and then immediately I am successful, or the trade goes in the right direction.

Very often, the market will move against me for a bit, so I’ve got to be comfortable with the market moving against me. It doesn’t scare me anymore. Although this does take discipline to stay in long enough and not panic and pull out. Obviously, it takes a lot to frighten Mark out of a position. He now makes up his own mind when to make a trade exit based on his target established.

Mark advised us that for a long time, he used to trade indices. The reason is because this is a much faster moving investment. Previously, Mark believed Forex was fast until he started trading the SMP.

Mark explained that exiting trades requires a plan and established targets so he knows what to head for. Generally speaking, due to Marks experience he tends to use the stop losses as the orders to get in and out of a market as a safety valve.

An example of this is if you look at the recent break in the dollar – you’d be crazy to get out of the market. Mark explained it just kept dropping like a brick.



This new edition includes more information about preparing your mind for the mental rigours of trading as well as more guidance on how to develop your own trading plan that you will implement with confidence.

** Includes a bonus CD with over 10 hours of multimedia training **

The foreword has been written by Daryl Guppy.

Click HERE to download an excerpt (PDF) NOW!

Review from Your Trading Edge

It is easy to understand why this book by Stuart McPhee is now in its third edition. Aimed at share traders, it is a great reference manual on the various aspects of operating a share trading business. There are specific chapters on many facets of trading shares, which need to be read and understood by every serious trader.

Two chapters on technical analysis and the use and understanding of charts and indicators provide useful explanations and interpretations of many of the more common of these trading tools. The book works through many of the concepts covered in most trading books. The big difference is that discussion is supported by many practical examples of the use of these concepts. They include entry and exit techniques, and the setting of stops, which is always important. The chapter on money management and risk is relevant and well presented, and provides a great introduction to these all too often neglected topics.

Click Here To Buy Now!

Chapter 10, “Developing your Mindset”, is very pertinent. It presents its material in a very readable and useable format, unlike the psychobabble of a number of other books that try to explain this extremely important topic.

The book is a great overview of the many aspects of successful share trading and should be read by everyone setting out on their trading career. The chapters on money management and developing your mindset are well worth reading by all traders, regardless of their level of expertise. It is a great reference book for those launching their trading business, and a healthy refresher for more experienced traders. True to its name, the book provides a great overview of the realities of trading ‘in a nutshell’.

As Seen In:

To claim your copy go to: www.TradingInANutShell.com,

By David Jenyns

When free is your idea of value for money, chances are… you`re either `dead broke` and too proud to admit it… or you`re an exceptionally resourceful type who hates their day job and could well be suited to a career in online stock trading.

For starters, you DON`T have to be in the Fortune 500 list in order to become wealthy from online stock trading. In fact, apart from your starting capital – which can be as little as `a few hundred dollars` – it`s entirely possible to build a sizeable stock portfolio on a shoe-string budget.

In today`s `Internet driven` world, you`re able to access vast quantities of data relating to every conceivable aspect of online stock trading… and a great deal of it`s FREE!

You`ll find discount commission brokerages, charting resources, technical trading tools, free market news sources and free analysis packages available. You can also register for free data feeds offering `up to the minute` pricing information about almost any given stock in the world – as long as it`s currently listed and currently trading.

You`ll note that I didn`t include trading forums or message boards amongst the range of resources available. Believe me…there`s a very good reason for this.

Over the past six to seven years, online stock trading fraudsters have infiltrated the forums and used them to post either false or misleading information about hundreds of stocks. This has led to unjustifiable price surges (often enabling the fraudsters to `sell out` and bag their ill-gotten gains before the prices falter and then plummet back to their previous levels). Not surprisingly, tens of thousands of shareholders have been financially burnt as a consequence.

In short… stay away from online stock trading forums and message boards. I liken them to a `toxic dumping ground for emotionally crippled small-time traders and shareholders who`ve little or no concept of what really determines price.`

Now, on a brighter note…it`s worth mentioning that major investment banks tend to house big stock research teams that cover stocks and their economic performances in great detail. In fact, investment banks are often your best choice when it comes to acquiring accurate and current online stock trading data.

If you`re interested, you`ve got nothing to lose by contacting (by email or phone) a representative from one of these investment banks and asking to be included in their mailing or newsletters lists. Not all such reports and newsletters are available for open online access.

Recommended Resources:

Technical Analysis of Stocks & Commodities  – http://www.traders.com

Ameritrade – http://www.ameritrade.com

E*Trade Financial  – http://www.etrade.com

Knight Capital Group – http://www.knight.com

Instinet – http://www.instinet.com

Stratasearch  - http://www.stratasearch.com

Big Charts – http://www.bigcharts.com

Chart Advisor  – http://www.chartadvisor.com

MSN – http://moneycentral.msn.com/investor/home.asp

In Summary:

With all the information you can find on the Internet relating to online stock trading, you shouldn`t have any problems keeping your initial costs down to absolute rock bottom. As your experience grows – along with your trading capital – you can always look to invest in select state-of-the-art trading resources. But for now…keep it lean and mean…and your online stock trading career will get off to a flying start.

First, let me offer you the most valuable piece of knowledge I have acquired over the years about MetaStock formula writing. This one secret will turn you into a MetaStock master. Do you think I know all of MetaStock`s hundreds of pre-programmed formula and propriety indicators? Well, I`m good, but I`m not that good.

When coding in MetaStock, the key to getting it “right” is to write what it is you are trying to achieve “down in English”. Once you`ve done this, it is easy to convert it into a MetaStock formula.

Let`s look at an example. Our first entry condition is a measure of price. As mentioned in Part 1, you want to set a price minimum to remove speculative stocks. Please note that the values you select will depend on the exchange you are trading. Some markets tend to be more expensive than others. For this example, we are looking to design a long-term trend following system to trade on the Australian Stock Exchange.

In Australia anything under $1 could be classed as a speculative stock. So how do you stipulate that the stocks you want must be greater than $1? First, “write it in English”: You want stocks with a 21-day average closing price that is greater than $1. Now, you can convert this into a MetaStock formula.

Using the formula reference section in the MetaStock Programming Study Guide, you can check the syntax of a moving average. Once you have this information, it`s simply a matter of plugging in the correct numbers. Then, by using the “greater than” symbol, you can stipulate the price to be greater than $1. The MetaStock code will look like this:

Mov(c,21,s) > 1

Let`s move onto the next component, liquidity. This is a measure of how much money a stock trades. It is important to identify stocks that have enough money moving through them so that you`re never caught with a stock you can`t get out of. For this example, let`s say we require the 21-day average of volume multiplied by the closing price to be greater than $200,000. In MetaStock language this would be:

Mov(v,21,s)*C > 200000

In the next article I`ll go through the last two components needed to design a mechanical entry system in MetaStock. With this information, you will be well on your way to starting an effective, and profitable, trading system in MetaStock.

-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-
David Jenyns is recognized as the leading expert when it comes to MetaStock and designing profitable trading systems.

His MetaStock website offers a huge free collection of trading related tips and tricks. Gain free access now.
Click Here ==> http://www.meta-formula.com/subscribe
-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-

Article Source: http://EzineArticles.com/?expert=David_Jenyns

Technorati Tags: MetaStock formula

By David Jenyns

In this three article series, I`m going to guide you through the process I use to design a trading system using MetaStock. I’ll cover the four major components that every successful trading system has in common, and then I’ll show you how to code these components into the MetaStock program. Please note that this is by no means investment advice and any information I cover is purely for illustrative purposes.

I am a technical analyst by trade. It is my belief that all fundamental and economic influences on a stock price are taken into consideration by the market. Therefore, I focus my attention on price action. All my trading systems are based on this understanding of the market, and the rules of my systems are built to respond to price actions. In this article, I’ll cover the basic rules of trading:

• Entry rules (when you get into a position)

• Exit rules (when you get out of one)

• Money Management rules (how much do you put in a trade?)

• Back-Testing (does the system work historically?)

These four components make up a proven formula for designing profitable trading systems in MetaStock. Let’s start with the first part.

A stock passing through a precise set of conditions creates entry signals before you will enter a trade on that security. I believe the rules set to signal an entry into a position should leave no room for individual judgment. I follow the KISS principal – that is they should Keep It Simple Simon.

Remember, there is no Holy Grail of entry systems. There is no MetaStock formula that will get you in at exactly the right time, everytime. With this in mind, it’s your goal to construct a simple, yet robust entry system.

Even though I always say that the entry is the least important component of any trading system, you still must have some way to enter a trade. Here are the points that I think are important to consider when identifying possible entry points.

PRICE: It is important to set price maximums/minimums because a stock’s price can determine its attributes. For example, speculative stocks tend to be cheaper, and blue chip shares tend to be more expensive.

LIDUIDITY: This is a measure of how much money the stock trades at. You need to set minimum levels of liquidity to keep you out of stocks that simply don’t trade enough. You can risk being trapped in stocks where the market is moving against you if they have a low liquidity.

VOLATILITY: This measurement tells you how much a stock moves. It is important to trade stocks that move enough for you to make a profit, yet aren’t so erratic that you can’t sleep at night.

TREND: This is the cornerstone of technical analysis. Remember that “the trend is your friend” and that you always want to trade with it, not against it. You will need a way to measure trend in your system.

TRIGGER: This is the point that will indicate it is time to enter a trade. The trigger condition occurs only at one point in time and doesn’t hold “true” over extended periods of time, such as with a moving average cross over.

When combined, these components are going to make up your entry rules. But, before we even begin coding this into MetaStock, you need to determine one of the most critical elements of any system. What time frame are you going to trade?

+ Short-term, such as a reversal trader

or

+ Long-term, such as a trend follower

There are distinct differences between these two types of systems and your choice here will have a marked effect on every other decision you make about your system.

Short-term systems tend to require a greater time commitment, and more money. However, the benefit of trading more often is that usually your profits are more consistent, and are realised more frequently.

Conversely, longer-term systems tend to require less time, and less money. However, since you are keeping your positions open longer, you need to wait until positions are closed out before you can collect any profits.

Generally, I steer my clients, particularly those who are just starting out, to a longer-term trend following system. It takes less time, less money, there is less risk and it is easier to do than short-term trading. In addition, trend following systems tend to have a higher win to loss ratios and are psychologically easier to follow because of this.

For the sake of this example, let us construct a trend following system. In the next two articles, I’ll explain how to code the four entry components of a trend following system into MetaStock.

David Jenyns is recognized as the leading expert when it comes to MetaStock and designing profitable trading systems.

His MetaStock website offers a huge free collection of trading related tips and tricks. Gain free access now.
Click Here ==> http://www.meta-formula.com/subscribe

Article Source: http://EzineArticles.com/?expert=David_Jenyns

Technorati Tags: trading system, economic influences, Entry rules, Exit rules, Money Management rules, Back-Testing, MetaStock, reversal trader, trend follower

There are a couple of reasons:

First, to warn you about the worst Forex trading strategy, because you really don`t want to end up using this system.

Second, because once you know the worst possible Forex trading strategy, the one that is designed to maximize your losses over the long run, then you can reverse it to craft a strategy which does the exact opposite.

With what you learn from the worst Forex trading strategy, you will be able to create a system that will produce some tremendous long-term gains. The worst Forex trading strategy I`m referring to, which is simply the worst Forex trading strategy I have ever encountered, is known as averaging down. This horrifying Forex trading strategy is the process of buying more shares that you had previously acquired, as the price drops.

Traders often purchase shares this way in an effort to reduce their initial entry price.

Only bad investors average down by buying shares of a sinking assests to decrease their overall average price per share. This Forex trading strategy is hardly ever effective, and is often like throwing good money after bad. It also magnifies a trader`s loss if the share keeps dropping. Remember, just because a share is cheap now that doesn`t mean it`s not going to get any cheaper. However, let`s examine how this devastating Forex trading strategy works. Say you bought one thousand shares at $40.

The novice investor may not have a stop loss in place, and the share price falls to $30 dollars. Here comes the stupidity of this Forex trading strategy — to average down the novice trader might by another thousand shares at $30 to lower the average cost per share that he`d already purchased. So, his average cost per share would now be $35.

Unfortunately, the share price may fall even further, and the novice trader will again buy more shares to reduce the average cost per share. They end up buying more and more into a share that`s losing their money.

Now, imagine this Forex trading strategy being applied to a portfolio of assets. In the end, all the capital will automatically be allocated to the worse performing assets in the portfolio while the best performing assets are sold off. The result is, at best, a disastrous underperformance versus the market.

If a trader uses an averaging down system and uses margins, their losses will be magnified even further. The biggest problem with this Forex trading strategy is that a trader`s gains are cut short, and the losers are left to run. My advice is — never average down. The process of buying a share, watching it fall, and then throwing more money at it in the hopes that you`ll either get back to break even or make a bigger killing is one of the most misguided pieces of advice on Wall Street. Never be faced with a situation where you`ll ask yourself, Should I risk even more than I originally intended in a desperate attempt to lower my cost and save my butt?`

Instead, design a simple, robust system with good money management rules. I can practically guarantee the results will be better than averaging down.

by David Jenyns

http://www.ultimate-trading-systems.com/forex.htm

Technorati Tags: David Jenyns, Forex trading strategy, averaging down, novice investor, Forex

+-+-+-

Original Article: www.makeupblog.cn/real-estate/the-secret-art-of-backtesting.html

Further Reading On Backtesting:

Technorati Tags: David Jenyns, MetaStock Programming Study Guide, Backtesting, moving averages, candle sticks, volatility breakouts, fibonacci retracements, trading system, Trading System Criteria