I have been worrying recently that trading has still not crystallised in my mind. It took a good three years for a general overview of the markets to crystallise when I was in my last job, but I need it to happen rather faster than that if I am to make money trading.

The key questions in trading are: when to get in, and when to get out.

  • Getting in I am getting sorted — when an expectation is confirmed by a breakout in the right direction, it is a good time to trade. But I am still too inclined to trade a breakout in a direction opposite to the one I was expecting — as with the S&P 500 in my latest trade. Also, this only deals with pro-trend entries. The quest for countertrend entry signals is something I have been working on recently — I have been experimenting in Tradestation, looking for indicators that show a change in supply and demand conditions such that a reversal can be expected to occur.
  • Getting out is, in a way, not too difficult at present. Either my stop is hit, or my profit target is hit. I have also had two successful exits where I got out of a trade before it made much of a loss. In one case I used my supply and demand indicators to do this, and in the other the movements of other related markets. When using profit targets has become second nature I may introduce some variability to allow for more upside.
I have also been paying attention to the relationships between markets. Today’s treasury trade is an example of that. Risk assets were rallying and so was USD/JPY, which is correlated with treasury yields. Treasuries seemed to be dawdling at the back, and I bet that they would catch up. My supply and demand indicators suggested that demand had driven the recent run-up in prices but that it had stopped increasing.
I think it is important to realise with all this that no indicator is going to tell you where the markets are going to be in a week’s time — lots of things will happen before then. The key thing is to use indicators and newsflow to answer two questions: 
  1. What has been happening?
  2. Is it going to carry on?
These embody an idea of how it is possible in principle to make money in the markets: understand what is going on, and bet on it continuing. This will not always work, because unforeseen, and unforeseeable, events can always prevent things from continuing. 
Perhaps I should ask these questions explicitly before every trade.
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