Since I developed the HP entry checklist in July last year it has never let me down. However, subsequent management of an HP position is a different kettle of fish altogether. So I thought it would be helpful to get a discussion going on this topic after a couple of very useful webinars on it. Here's some of what I have learned that works for me. It would be great to get some feedback, including any other lessons people have learned.
1. Manage your stop losses to allow plenty of room for variation in price action and be prepared to be stopped out rather than necessarily optimising your profit. Alternatively you might want to just take profit when you are happy with it.
2. Move your stop loss after large favourable changes in the movement.
3. Stop loss management is primarily about reading the candles. One of the most effective areas is where price action has stalled or referenced repeatedly.
4. Indicators can not tell you exactly when to exit. However some indicators are useful in assessing the strength of the trend, such as MACD bar height, DMI and ADX. If DMI, ADX, or MACD bar height are declining it means the strength of the trend is declining: it does not necessarily mean the trend is over.
5. The HP movement is not over until there is an HP move to the contrary. However, you probably want to exit before the new HP move - again reading candles is required.
6. If the MACD reverses, use the checklist to assess whether there is a new HP move on or whether the existing trend is pausing temporarily. Don't over-react to MACD reversals, do what Momma says: use the checklist, be polite, and clean your teeth twice a day.
7. Part of not over-reacting is not to become too involved in intra-day activity. One exception would be that you have decided to exit the position on a favourable candle and are looking for an optimum time.
8. Remember: MACD crossovers can occur and then diminish or vapourise within the same day, as markets open and close round the globe. Here in NZ I assess the checklist about 9 a.m., just AFTER the New York market has closed.
Great list Alan. The one about avoiding getting involved in intraday activity particularly resonates. To add to the list perhaps a variation of number one through number three. In Trading in the zone book Mark Douglas recommends to pay yourself as the market makes money available to you. He emphasises the importance of experiencing 'risk free opportunity' - a situation where there's no way to lose. Include a combination of partial profit taking and stop loss modification to get to this situation as early as possible.
I Agree Alan and Nathan with Mark Douglas but its important to be aware of time frames... eg as in scalping activity or longer time frames.
With scalping, stops are closer and moved more frequently... profit targets are also used more frequently.
With daily GaS candles, the idea is to give space for something to run. When the market is trending... its easy to do... however when market action is consolidating... its not as easy.
In consolidating markets... you might be more circumspect on when to move stop losses based on what momentum and volume indicators are revealing... and on what certain candles... or groups of candles are saying.
A good deal of "acceptance" is also useful. The price action will do what it will do. The idea is to manage your risk by not over committing your account and then positioning yourself for the HP's when they are available.
Another point is that Mark Douglas can be referring to any number of different strategies and each strategy will have a different way of placing and calculating stops.
What you're learning with HP's is different than using supports and resistances for entries and exits.
Yes I was thinking about this and reached a similar conclusion Paul. I think with HP trading on a daily time frame it can be tempting to overthink things when actually it's quite simple: for me the strategy is get in on the checklist, manage stop losses effectively, and add to the position as and when appropriate. So, here the primary aim would be managing the total risk to something I can accept rather than necessarily trying to break even along the way. I personally have enough confidence in the HP checklist and this process not to pay myself as I go.
Yes Alan... you're spot on... when you first move your stop because you're potentially "in the money"... you just move it to where your original risk was. So... let's say your initial risk was $100... and now you're $50 in the money. If you didn't move your stop loss... your risk is now $150... so if you move your initial stop $50... your risk is still $100 but now its $50 from the market and only $50 from you.
If the position moves another $50 deeper in the money, if you move the stop to entry... you're still risking $100 but this time it all belongs to the market and none of it is from you.
Thanks for that Alan and Paul. Its very helpful. In addition to above , Mark D recommends frequent experience of the 'no loss' situation to induce a care free, relaxed state of mind and to associate it with the trading experience as part of the psychological training process. Is it appropriate to think of it more as a training tool rather than a necessary feature of a profitable trade?
What Mark D is really talking about is increases in Self Efficacy
Is it appropriate to say this is a technique to empower positive new belief that I will suceed and take energy away from old opposing limiting beliefs? The positive experience validates and reinforces the new belief .
This might be going off topic. Shall I start a new thread ?
Paul I have been looking at an indicator called MMENTUM on CMC. It looks quite promising as a trend strength indicator. Any idea what it actually is?
No Alan... I've not heard of it before. I'll do some research
