After making numerous mistakes over the last several years I have found a technical formula for consistently profitable trading:
HIGH PROBABILITY FORMULA:
BIG CHARTS + CROSSHAIRS = QUICK PROFITS
If you have been around the trading block a few times you well know the popular Wall Street axioms that are supposed to help you with your trading success. They could actually hurt you if you are not careful!
Let’s look at just two of them and see how each one can improve your success (which is all that matters!) when combined with my formula:
LET YOUR WINNERS RUN
It is easy to say “let your winners run”, but what exactly does that mean? For one trader a winner may mean reaching a predetermined target. For another, it may mean following a trend until it ends. And for others, such as investors, winners could be years in the making. Depending on your time frame for trading letting a winner run could easily range from minutes to months.
CUT YOUR LOSSES
This is a real easy one but the hardest one to master. Cutting losses, just like letting the winners run, is a personal matter and can vary from trader to trader based on several factors other than those mentioned in the previous paragraph. Cutting losses has to do with your risk tolerance and your ability to trust in yourself. If you trust the high probability of your pattern AND you have a predetermined loss target, cutting losses simply boils down to your risk tolerance. In other words, how much are you willing to lose before you give your trade a chance to work?
EMOTION FREE TRADING
Letting your winners run and cutting your losses carry psychological baggage that is rarely discussed to my satisfaction. As a beginning trader I had to deal with the following emotional issues:
1) do I have a winner and is the profit enough?
2) if the trade is losing money, is this just a pullback for the next run or should I cut my losses here?
3) if the trade is making money and I take the profit when will I have another chance to enter the trade?
4) if the trade is a loser should I add to it or take the loss and risk having to wait a very long time for the next trade?
Constantly focusing on these questions (and others like them) can kill you as a trader because as you fret over these questions other skilled traders have already made their money and are waiting for the next opportunity.
THE CROSSHAIRS FORMULA
I developed my formula for taking quick profits using my highly probable CROSSHAIRS set up because 1) I do not wish to day trade for small profits multiple times a day but prefer to look for quick profits on bigger charts multiple times a week; 2) I do not wish to confront all the psychological issues when trying to hit a home run with each trade; 3) I know that my set up will provide me multiple opportunities every week without me having to worry about when I can trade again; 4) I would rather bank small profits 90% of the time then try to make huge profits 50% of the time.
CROSSHAIRS CHART EXAMPLE (NEM):
Looking at the chart of Newmont Mining (NEM) on a shorter time frame than the DAILY (my “deployment” chart), my CROSSHAIRS TRADING set up provides the following:
1. an entry point (vertical CH line) and a loss exit point (horizontal CH line) AT THE SAME TIME! No guessing and no emotion. There it is. My eyes cannot deceive me!
2. The profit target varies and depends on the trader. Since I trade options I seek a very quick profit over and over again (usually in and out the same day and rarely in a trade longer than 3 days).
3. I know that my set up will give me multiple opportunities to trade. In this case NEM gave me three opportunities to trade during the month of May 2009. No need to go looking for another trade. I allow the trade to come to me!
4. The previous point, in combination with the last trade above (#3) gives me all the reason I need to be satisfied taking quick profits over and over again. If I did not take the profits on this trade I could have lost a big chunk of what I had made over the last two trades. Why do that? Another trade will come either with NEM or another stock.
MY PHILOSOPHY:
A DOLLAR IN THE HAND IS BETTER THAN TWO LEFT ON THE STREET
it is too good to beginners and losers. now can i get more formula and charts?