Do Not Formulate New Opinions/ Strategies as a Trade Progresses

Do Not Formulate New Opinions/ Strategies as a Trade Progresses

If you are buying based upon a daily signal, sell based upon a daily signal. If a daily candlestick “buy"’ signal is the reason for entering a trade, then let a candlestick “sell” signal indicate when to come out of a trade. A common mis­take technical investors make is exiting a trade because of price movement occurring contrary to expectation on a shorter timeframe.

An example would be buying a stock or commodity position based upon the criteria of a good bullish trade; a candlestick buy signal with stochastics in the oversold condition, starting to curl up. After two or three positive trading days the price sells off hard early in the day. It would form a candlestick sell signal if it closed at that level. However, the stochastics or other trend param­eters may still be in an upward trajectory. What should be the course of action? Nothing! Wait until the end of the time frame that your investment program involves. If you are buying based upon a daily buy signal, then sell based upon the completion of a daily candlestick sell signal. Whatever price movement occurs in between the open and the close is noise. The signal is created at the end of the timeframe.

Will there be selling during an uptrend? Of course. If the price goes into the close at the same levels it did during the early part of the day, it would create a candlestick sell signal. Although stochastics is heading up, a new investment strategy can be analyzed with that information. More than likely, prices may end up near the top of the trading range at the end of the day. Keep in mind, the candlestick buy signal provided a high probability indicator that a trend reversal had occurred. Allow the signals to dictate what prices should do. The signals are formed at the END of the timeframe.

Other Opinions

One major human flaw is listening to what other people verbalize. Hearing somebody else’s opinion can start causing doubt when maintaining a position. The exposure to financial news stations and a multitude of investment chat rooms creates the opportunity to hear many ‘opinions’. If you buy based upon a set of parameters, do not change your investment decision parameters mid­stream. Everybody will have an opinion on what should be done with specific investments. Your decisions should be based upon your analysis for entering and exiting trades.

There are two major reasons for not letting others influence your deci­sions. First, the establishment of a trade was based upon evaluations of the indicators that you know, or are learning, for malting profitable trades. To cir­cumvent the exiting of a trade, because of another source’s influence, does not allow the investor to correctly analyze the success or failure of that trade. If the trade does not work, an investor wants to be able to analyze the result based upon the failure of the indicators they are using. Exiting a trade based upon other criteria does not add information to your program knowledge.

Secondly, the opinions of others may be formulated by completely differ­ent or unknown factors. Their viewpoint could be influenced by a multitude of factors that have nothing to do with the reason you have put on a trade. Their timeframe, their risk tolerance, the information that they based their opinion on may not have anything in common with your investment technique. Does this necessarily mean that all other opinions need to be ignored? Not necessar­ily, but that information should be assimilated into your total analysis, not as a prime decision factor.