You have subscribed to Joe Ross' Weekly Spread Scan Newsletter.
If you have problems reading this newsletter, please follow this link:
Spread Scan Issue: December 20, 2006 - Volume 123

back to top

Joe's Trading Tidbit

Hey Joe!  What is the right way to look at a trade: Dollars, points, percentages?  What? And how do you manage the one you choose?

One of the weaknesses of many traders is that when a position is moving in their direction, they look at it in terms of dollars. In other words, they see it ticking on their screen in dollars, but they know they shouldn't, and that they really need to look at it in terms of whether it is a good trade or a bad trade.

The right questions to ask are: how many points is the trade making? What kind of return is the trade making relative to the amount of margin required to take the trade?  Instead, they look at it as dollars because they see dollars totalling on their P&L on the computer screen. If they've got a trade in for a minute and a half, and they start seeing a gain of two hundred fifty, three hundred dollars, four hundred fifty, five fifty — they’re tempted to take the money and run. Even though prices may have more distance to run, and technically the chart says they’re probably going to move higher, traders jump in, cut the trade, and take the money.  Then they feel a lot of regret, especially when prices do run another five or six points. What is the solution?

Staying longer can end up with your giving up all your profits.  Not staying often leads to regrets. I have found the best solution for me is to compromise. Take some money off the table right away.  Then trail a stop until it is hit or it becomes painfully obvious that prices are truly stalling out in my direction.  I prefer to think of a trade in dollars until it reaches my first money-taking objective, and then to think of it in points until I am finally out.

back to top