HELPFUL HINTS:

ENTRY TECHNIQUES

Planning your trade and working your plan leads to better trading results. We hear this from traders who have been ‘emotionally’ tied to a trade, which they believed had to turn around and go in their favor, because all their trading signals pointed to a ‘winning’ trade. Unfortunately, commodity markets do not always adhere to conformed behavior. This is a primary reason for having trade discipline, planning your exit strategy. Here is an example that may be of help when a market does not react as thought, after your recent entry.

Whatever entry techniques enticed you to ‘buy/sell’ a particular commodity; overbot/oversold levels breached, cross of a moving average, bounce off a double bottom or double top, breakout above/below a channel or envelope, etc., hopefully you had the discipline to place a ‘stop-loss’ order after your entry. If the market reverses above/below the entry signal or technique that led you to enter the market, rather than waiting for your ‘stop’ to be hit, why not exit the market gracefully and then look to re-enter should the market advance/decline back above/below your original entry price.

Example:

With Oct Gold technically ‘over-sold’ at $804.0, a close above the 61.8% Fib Ret level of $820.5 should lead to some profit-taking by ‘shorts’ and possibly bargain hunting by funds. The market does close at $821.0, $17.0 off the recent low. I place an order to buy (on a stop) above the daily Hi of $829.6, expecting momentum to increase and price to go higher. I get filled at my price and place a protective sell stop below the recent low of $804.6. The market retraces from a daily Hi of $831.0 and closes the day below the 61.8 Fib level of $820.5 at $819.6.

The momentum buying did not follow through as I had planned and Gold closed below the 61.8% Fib level. Rather than risk the market going down to my protective stop of $804.6, I will exit here, accept my loss and look to re-enter, on a ‘buy-stop’, above the previous Hi at $829.6.

Once filled on my order to buy 4 Oct Gold at $829.6 stop, I will immediately place my protective sell stop and also place a limit order to sell (at a profit) half my position, 2 cts, at the Average True Trading Range of the last 5 days. To find the Average True range; add the trading range (Hi – Lo) of each of the last 5 trading days and divide by 5. (118.8/5=23.7)

Place an order to Sell 2 cts at 829.6 + 23.7= 853.3 GTC. Once you have exited half your position at a nice profit, then raise your protective stop to the lowest low of the last 3 trading days and adjust it each day until you are stopped out with additional profits or exit using a different signal or tighter trailing ‘stop’.

You won’t get out at the High, but you should take a nice profit and reduce risk exposure.

I hope this is as helpful to you as it has been to me.

Good trading,

Bob

Futures and options trading involves substantial risk of loss and is not suitable for all investors. Clients may lose more than their initial investment. Past performance is not indicative of future results.