Swing Trading and Market Timing Knowledgebase

By: John Crane, swing trading guru

The Lease Understood Part of Your Trading Could Be Costing You Money

Traders spend a vast majority of their learning curve on futures market entry. Timing the entry has always been the most exciting part of trading. It’s the moment you decide to take action and enter the futures market and from that time on there is no turning back. The adrenaline is pumping as the trade begins to unfold. If the futures market moves in the correct direction you feel satisfied; if it moves the wrong way you feel anxiety. Either is an emotional rush.

In reality, the entry is the easiest part of the trade. The decision to enter a trade is clear-cut, you either do it or you don’t. Once you have entered the trade, everything changes. Your money is on the line and emotions can overtake rational thinking and quickly destroy a well-thought-out trading plan. This can cause a trader to exit early or too late. Either way, it can take away from the profit potential. Most traders spend very little time on the exit, but a bad exit strategy can cost hundreds of dollars.

For example, suppose you are long a position and the futures market reaches a new high and reverses and quickly drops through your stop, causing a loss on the trade. So you make a rule that the next time you have a profit you will exit quickly, because you reason that you can’t go broke taking a profit. The next trade comes along and your position is showing a slight profit so you exit the trade with a gain. You’re happy until you notice the futures market continuing to climb higher and higher as you stand on the sidelines. The potential for a large profit was missed. So you change the rule again, and the cycle continues.

A simple trading plan of entering the futures market and following with a protective stop is better than no plan, but you will give up a lot of profit potential when the futures market pulls back from a high or low and triggers the protective stop. Don’t get me wrong, protective stops are necessary for equity preservation and timing the entry is important, but timing the exit can add greatly to your bottom line. This is what I hope to teach you: timing the entry and the exit to increase the consistency and add to the bottom line.

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**THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER-COMPENSATED FOR THE IMPACT IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES.