TRADETHINK ARTICLES

Don't Buck the Trend

October 29, 2008

By Chris Morse

The saying goes “the trend is your friend”. When following the markets I like a style that follows the trend. I prefer to stick with winning trades until the trend pulls back or reverses. On occasion there will be trade signals generated from my system that may seem like they will never happen. Even though the signal may look like it may not hit, you must always follow your trading rules whether they are your own or a set of system rules.

There are many times a trader will not follow his or her own trading rules. The trader may have been in and out of a particular market several times and having followed his/her rules taken a big series of losing trades. But wait. This is what a set of trading rules are for. A trader must take a series of calculated losing trades and get in and out of those trades using protective or worst case stops. So that when a trade does not run, the trader is at least minimizing their losses. And guess what? Most of the time a trade will not always run. In fact the markets are trending less than 40% of the time! Why on earth would an intelligent person think they could be correct more often than not about a trade is beyond me. This is why we use rules. So when a trade does not work out we can exit the trade with a manageable loss or series of losing trades so that we may live to trade another day.

It is living to trade that next day when the good trades are made many of the times. Just after taking loss after loss after loss and when you get sick and tired of getting in and out and in and out of the markets and you are emotional wanting to call it quits is when maybe just perhaps that big winning trade will come.

But wait, most traders that have just taken many losing trades or winning trades for that matter may be a little gun shy. Yes, the trader becomes afraid to pull the trigger on the next trade, maybe the next important big trade. Why? Because now the trader thinks their system or strategy is not so smart. The trader feels that his system has had a few too many losing trades. Now the scary part, the trader thinks they are smarter than the system that has proven itself to the trader time and time again.

Do you really want to know why most traders lose money? This is probably the most important thing you will ever learn (if you are lucky) in trading. The reason why most traders lose and will continue to lose whether they have a good method of trading or not……….The answer is that the trader second-guesses the wrong trade.

I have two trades below, that for every one who read the Monday September 22, 2008 “The Week Ahead” article could have tried to take. And guess what? I bet not one person reading this article took the trades.

For that “The Week Ahead” FastBreak I had at total of five possible trades that my TradeThink.com system was looking to enter. At the time on that Monday it looked like several of the trades entries were quite far away. However, it is so very important to enter your trades no matter what you think the market may or may not do. I personally thought the trades were off the mark, but one must follow the system and the rules.

Here are the two trades that could have been entered.

Two of the trades were recommendations in the Euro Currency and the Copper market. At the time the December 2008 Euro Currency contract was at 144.43 as of the previous close. The TradeThink.com system had a recommendation to go short at 138.13.

The December 2008 Copper contract was at 317.65 as of the previous close. The TradeThink.com system had a recommendation to go short Copper at 303.5. There were three other potential trades in the Yen, Bund and Eurodollars that never hit their target.

Here is what the chart for the Euro Currency looked like on Monday September 22, 2008.



Here is how things looked when the signal finally hit for the Euro Currency.



On October 2, 2008 our Dec Euro Currency was hit and the system went short at 303.5 and we are still short the Euro. The close of the Euro yesterday was 125.21. That is a $16,150 move per contract!

Here is what the chart for Copper looked like on Monday September 22, 2008



Here is how things looked when the signal finally hit for the Copper.



On September 29, 2008 our December 2008 Copper contract was hit and the system went short at 293.75 (we gapped down and had to use the open as our entry price) and we are still short the Copper. The close of the Copper yesterday was 180.50. That is a $28,312 move per contract!

Together the Copper and Euro trade are up over $44,000 per contract. This is on a one lot. If you were signed up for a free evaluation of TradeThink.com or read the September 22nd “The Week Ahead” FastBreak article, you may have even seen the trade yourself!

The moral of the story is to stick to your guns when trading and if you can’t, please find someone who can assist you. The reality of the story though is that most traders will keep second guessing trades, pull their winners too soon and not be successful at trading.

Good luck!

About the Author

Chris Morse is the Developer of the TradeThink trading system. He has been involved in the development of trading strategies for nearly ten years. Mr. Morse developed a very robust system which is now in private use at one of the largest FCM's and has earned sizable returns for the last 3 years. Mr. Morse now focuses his time exclusively on developing and managing his systems.