Wednesday, December 31, 2008

As I Get Better

I probably shouldn't be trading during this period. I know there is thin volume, that moves may not reflect wider market sentiment, and whatever else I should know. However, I simply like to trade. Besides, now that I'm getting better, it's a hobby that can generate an income.

One thing I've noticed though is that I'm still too impatient. Basically, my worst batting average will coincide with my first trades. I simply don't wait for a good enough entry point when my account has been squared. This doesn't stop me from earning revenue or anything like that, but it certainly does limit my ability to do so as I have to be cautious about how much risk I put on the table at any one time.

Because this first trade is most likely to end up under water I am often in a position where I have to extract myself from this trade. For example, over the last few days the market has been range bound. I don't feel any particular rush to liquidate my ill-timed position, but it would be nice not to have it hanging over my activities.

So, as we approach what appears to be the top of our range I will sell a profitable position and then liquidate a portion of my ill-fated trade. Perhaps the ratio will be something like 5:1 in terms of profit versus loss. This means that I'd earn $5 on my winning position and accept $1 of loss on my losing position.

As long as what is over your head is not a huge position relative to your willingness to accept risk, then you can just whittle away at it. Once again, as I discussed in my last post on "extractions", you have to keep calm about things and be comfortable in the knowledge that you have a nice win/loss ratio to take advantage of. Besides, as long as the risk level is kept low, you might just find that the position becomes profitable again before you've gotten rid of it.

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