Ok...now the motive to start with these trades...
Like any trader, you have a view on the UL, bearish, bullish, sideways and in stock you can make money either in bullish or bearish movements (sideways is for Options...so we will not talk about it here).
So there are only two views to profit, bullish or bearish (we are not talking about the speed of change). It is just a plain view of the UL reaching a particular price up in case of bullish view and a particular price down in case of bearish view and by a 'specific time'. For every system of ours, this is important that the view has to be till a specific time, either 10 mins, 30 mins, till EOD, for 3 days, a week, a month etc.
But since we are no God, can we exactly define the end of the 'specific time' or can we define that our entry is just the right time and move will happen exactly after we have taken a position. Am I talking about catching the bottom or tops to take the best entry position - which by inate human desire we all want, yes...to a large extent, but then we need a confirmation too that we have indeed caught the best entry position and that too WITHOUT incurring loss..so the question is how do we do it, eating the cake and keeping it too...
When we arrive at a decision point (and say our view is bullish) we generally enter long, we generally enter at a point where the bears have just climaxed but are the bulls ready to charge....generally no. Though ideally we should have entered after a pause to let the climaxed bears, breathe easy and cool down and just as the bulls show signs of charging. But most of the traders are not so paitent to do so, and since we always want to be in the market, we take long position just when the bears have climaxed and then hold on our position till the bulls start charging....this waiting period of waiting and hoping that our position will flourish is the culprit and lot of things keep running in our minds during this time. We consider the time invested is too long and hence even when there is small up move, we tend to exit as we are restless, since we were kept waiting for so long for the bulls to charge. Alternatively if the bears decide to march further down south, there are high chances that the position is held on, since you are married to the position as you have been holding it for so long long time and the long holding period does not allow you to exit even when you know that the movement is not in your desired direction.
So though the best thing is to enter just when the bulls are ready to charge (in case of bullish view) or just when bears are ready to attack (in case of bearish view), we can succumb to our urge to enter the market and 'Get into the Action' and 'Get the first hand feel' by ENTERING NEUTRAL POSITIONS. Yes ENTER NEUTRAL.
So in the above example in both the position I have initiated the trades in Neutral Gear that means that the ignition of my car is ON and I am standby in a Netural Gear.
I had a view, in both the trades I mentioned - and that was
bearish, but since I did not for sure knew when that would likely be triggered, I entered Neutral - so I am in the market and already in the action..till the time the market were moving in a limited range, my setups were not in much loss nor in much profit. As the time passed, and your conviction as per your system, charts and price action suggest that the desired movement has started, which can be anytime from the initiation time to the intermidiate time, I CLOSE THE LOSS MAKING POSITION from the NEUTRAL POSTION that I had at initiation. And than now I have a directional position, as per the trend in the market.
So out of the two sides, say for example, I do not spend my time and energy to keep analysing, which side is right and then move to side, BUT I AM IN THERE sitting on the fence all the times with one leg on each side, and swings my legs merrying in the air. The moment one side shows action, I pull out my leg from the other side, it is very fast and very easy.
How does this help...
- It meets the basic trader's instict of being in the market all the times (and the Netural position help you to be in the market, but without bearing any loss as you are market Neutral)
- As you exit your loss making position because of a movement in your anticipation, you develop habit of exiting trades in early loss - another requirement to be a successful trader.
- It helps to hold your positions for long time, since after an move in your direction, if there is a pause, you can reinitiate the opposite position and then then again get back to the market neutral position, keeping the original position in profit.
- And most importantly when you are having a market Netural position, and the movement subsequently happens in the OPPOSITE direction of your anticipation, you can either exit the entire NEUTRAL position or exit your loss making position (the position which you originally wanted to hold and profit) and continue with you NOW profit making position (originally which you did not anticipate to be in profit). So now you got it how to make your loss making position run into profits. This is despite the movement happening in the opposited direction to your anticipation.
There are a few more ways do this, but won't be stating them here...so other time.....
Hope you have understood what I wanted to convey, the Options trade was just an example, hence in those two trades, I have earned, but the original set up was exited midway and loss making trades where shun out, holding just the directional profit making position and profiting from the momemtum of the fall (in this case) or in some other cases would be a bull run.
To make things simpler for stock traders, it is like, If I am bullish on stock 'A', I go long stock 'A' and at the same time I go short say, stock 'B' (assuming they have be same Beta and are strongly correlated). And then I wait, from my initiation to the intermidate time (almost till half time of my original holding period) and just when the bull run starts during this period and I can see it on charts and price, I cover stock B and let stock A run in the money. And, if the bulls fail to take off till my holding period, i get out of both the stock. And conversley, if bears decide to take control in the interim, I either exit both the positions or cover the long stock A and continue holding short stock B.
Hope this help to convey my motive. Practise it, practise it, you can use it with your existing decision making system. And convert you loss making trades in to winners.
Regards,
