P1: PIC/PIC c07
August 12, 2008
Printer: Yet to come
HIGH PROBABILITY TRADING STRATEGIES FOR ANY MARKET AND ANY TIME FRAME
FIGURE 7.10 Adjust Protective Sell-Stop: Upside Should Be Limited
Trade results (LT unit): Stopped out at 1507.00 on the second 60m bar the morning of December 7 for the long position taken November 27 at 1431.75, for a profit of 75.25 points. The S&P did continue higher the following day, eventually reaching 1527.00 on December 11, about 9 points above the 61.8% retracement, to complete a Wave-C high followed by a decline to below the November low. The daily momentum made a bearish reversal on December 11. Only the fast line of the weekly momentum reached the OB zone the WE December 21 with a bearish reversal the following week. Let’s review this trade campaign. The initial capital exposure per contract was relatively large at 24.25 points. The beauty of the objective maximum position size is capital exposure per unit is not relevant by itself. It is only relevant by the position size. It’s the total capital exposure of the position size relative to the account size that is relevant, so no trade is taken if the capital exposure of the total position is greater than 3%. It doesn’t matter if you have a small or a large position. The risk will never be more than 3% as long as you follow the maximum risk per trade rule. The objective is to identify conditions with a high probability outcome and take advantage of those conditions.