Today’s post about exiting trades should help me to answer another question, which Ed Clive has me thinking about again: how much should I be watching the market? It seems clear that watching it all the time is distracting and creates an unnecessary emotional rollercoaster; but I do have some reasons for watching it:

  1. I have had more success entering trades manually than by leaving orders to enter at a particular market level. An order does not know whether a market looks like shooting through a certain level or turning around – I do, and I prefer not to fight a strong intra-day trend.
  2. The reality of a trade going against you has more emotional force when it actually happens. Thus one will be more inclined towards taking profits when the market is actually turning around.
  3. The alternative to watching the market for an exit is to place a stop in the morning. But one is not in a good frame of mind at the start of every day. Watching trades means constant re-evaluation throughout the day.

I do not see any way around point 1. If you get better entries by watching the market, then you have to watch the market. However, that only means that you have to watch potential new trades, which is less emotionally draining, and only some new trades seem to require this kind of care. Point 2 has been a consideration, but it should not be. One can think carefully about how to respond to events before they happen — that kind of planning is something all the trading books tell you you ought to do. Point 3 can be dealt with by reassessing the markets at certain set times — say, first thing in the morning, first thing in the office, at lunch time, before going home and in the evening. That should be enough to keep me thinking about my positions, but not so much that it becomes a distraction.

So, here is a plan:

  • Look at open positions only at the set times listed above.
  • Every morning, go though open trades and decide where you would exit. Place a stop there.
  • Do not generally exit trades going against you except with stop orders the you have left.
  • Leave orders to enter trades as much as possible, rather than watching for an entry.
Update: I have remembered that IG Index allows you to place alerts that pop up when market gets to a certain level. These would be a good thing to use — I don’t like using stop orders because they are a blunt instrument, but there is no reason not to set alerts every morning to tell you if a market gets to a certain level.

Update 2: The more I think about this, the more I think I am being influenced by the wrong sort of thinking (and by feeling bad because sugar is re-testing its last breakout). Markets move all the time, and sometimes they disappoint you — it is natural to be disappointed when a position goes against you. But does that mean it is better not to know? Or that better traders are the ones who are emotionless? I don’t think these are true — emotion is necessary for making decisions, and perhaps a professional trader should know where his positions are. Obsessively watching them all day is a fault, but surely not keeping an eye on them. Sometimes it will make you feel bad. So what — deal with it.

As you can see, this train of thought is still in the developmental stage!