MESSAGES FROM JACKO (Nov 07) - 10, 11, 12

MESSAGE FROM JACKO 10
It is 9.30 am NY time Thursday Nov 15 and the market is at 1.4616

Have just woken to find my that my order of 1.4625 was hit some 4 hours ago.

The market has since risen to 1.4645 so my trailing stop loss currently sits at 1.4595.


MESSAGE FROM JACKO 11

It is 8.55 NY time Friday Nov 16 and the market is at 1.4640.

Have just return from being out. Our trade was taken out by the savage spike that saw a 65 pip drop in 15 minutes. Unfortunately, it hit our trailing stop loss at 1.4595 for a loss of 30 pips.

Worse, it then dropped only 15 pips below our SL, which was insufficient to trigger an A-H position.

We need to sit back and review the situation to determine our next entry point. I won't be entering anther trade today.

And yes, I am annoyed and disappointed.......I hate a losing trade.


MESSAGE FROM JACKO 12

It is 2.00pm NY time Sunday November 18 and the market is closed.

This message is to answer a couple of the major questions that I have been asked in the emails.

1. Trailing Stops

The first question is how the trailing stop works.

1. When a position is taken a trailing stop loss is manually placed at the price 50 pips below the entry price.
2. As the price moves up say 20 pips, the stop loss is also moved up 20 pips. This process continues until themarket reaches a high and starts to fall. At such time the stop loss is adjusted to 50 pips from the highest pricepoint since the trade was opened.
3. As the market falls the stop loss remains at the same 50 pips from the highest price point since the trade was
opened.
4. There are then two possibilities:
(a) The market falls and your stop is hit at 50 pips from the highest price point.
(b) The market falls less than 50 pips from the highest price point and then turns around and continues in the upward trend. As it goes past the previous highest price point the trailing stop loss get adjusted higher to maintain a 50 pip gap from the new highest price.
This process continues until such time as the trade is closed.

One question that I have been asked in regard to the trailing stop loss is whether I ever close a trade before it hits the 50 pips. The answer is that I have found that if I close it before the 50 pips, the market is as likely to turn and continue upwards as it is to go lower and hit the trailing stop loss. So I tend to leave the 50 pip Trailing stop loss as my method of closing a trade.

Also, my rule of letting the Trailing stop loss close out all my trades makes the closing of all my trades an emotion-less decision. I don't have to get "concerned" about whether I am getting out too early or too late.

Another question was why did I use 50 pips.
The answer is that 50 pips was just an amount I was comfortable with losing if I was wwwwrrong. Also, 50 pips is a reasonably clear indicator from the market that I am wrong.

However, having said that, I have very, very rarely hit a 50 pip loss with the trailing SL. The market has never gone straight down against me without even a small bubble upwards. My average pip loss is on unsuccessful, initial trades is around 15 -20 pips.


2. The Anti - Hedging Strategy
This strategy was invented by me as an alternative to "hedging" which is often discussed on Forums as a panacea to a losing trade.
"Hedging " to me is simply hiding a loss under another opposite trade...and sooner or later, when the hedge comes off, there is an ugly loss exposed...I don't like that concept !!! (However, to those who use them, I say, different strokes for different folks...that is, its a personal choice).

Currently, this is what seems to happen to some Traders...
1. you put a trade on and you put a stop loss of around 50 pips
2. the market goes against you (horrors....I was wwwwwrong !! )
3. let the market continue...it will probably go say another 30 - 100 pips past your stop...who knows ???
4. FINALLY, the market comes back around and starts to head in the opposite direction
5. by now you are totally hacked off with the market and you let it go

The solution that that I found is a pretty simple one but one that has to be executed without fail...

Scenario 2
That strategy is:
1. you put a trade on and you put a stop loss of around 50 pips
2. the market goes against you (horrors....I was wwwwwrong !! )
3. let the market continue...it will probably go say another 30 - 100 pips past your stop...who knows ???
4. WHEN THE MARKET IS 50 PIPS PAST YOUR STOP LOSS, PUT AN ORDER IN AT THE EXACT SAME FIGURE AS YOUR STOP LOSS (if you were originally "long" then place a "long" order) This ensures that when the market comes back, as it invariably does in a trending market, you have a DEFINITE order in place to put you back in the market where you were originally...and you are now in the same direction as the market is moving..
5. FINALLY, the market comes back around and starts to head in the opposite direction
6. The market picks you back up on its new direction
7. THE ADVANTAGES OF THIS (THEORETICAL) STRATEGY IS THAT
a. IT HAS AN EFFECTIVE AND DISCIPLINED COURSE OF ACTION
b. IT GIVES YOU A SPECIFIC "ENTRY" POINT
c. IT REDUCES LARGE DRAWDOWNS
d. IT PUTS YOU BACK IN THE MARKET EXACTLY WHERE YOU GOT OUT

The A-H is used only on a trade that has suffered a loss.

I know that there are DISADVANTAGES with this strategy, buy I think that the overall effect of the advantages outweigh the disadvantages.
I also think that this strategy is more appealing to my business sense of minimising risk than the original concept of "hedging" that initially set me off to discover an alternative strategy to hedging.I have now been using this strategy for a couple of months and it is working brilliantly.
PLEASE NOTE : I am a medium to long term trend trader. The above method works best on those time frames. It works less well on short term time frames because of the volatile "noise" in the market.When a stop loss has been triggered, I allow it to go past my SL by a minimum of 50 pips before I set the new order.


3 What if it does NOT go 50 pips past the Stop Loss

Another question in relation to the A-H is, what if it does not go 50 pips past the Stop Loss. The best way to answer this is with a hypothetical sent in by one of the group.
a. you buy at 1.4600
b. market dives like a shot duck straight down to SL at 1.4550
c. market goes to say 1.4525, therefore not setting off a AH order
d. market goes back up
Depending on how the market was moving back up*, I would make a decision to either
a. scrap the trade, take the loss and wait for a deeper retracement later or
b. reopen the trade at where I closed it ..1.4550 (But I would have to be convinced that it had definitely resumed its upward trend or that it would do so very quickly)

*If it was a slow and shallow dip to 1.4225 with a slow gradual rise up I would take option b
If it was a quick and sharp dip with a corresponding quick rise I would take option a
Option a is my preferred option.


4. How often do I monitor the market

Another question is how often I monitor the market. Luckily, when I am in Asia I can monitor the market simply by walking down the street. In Asia, most places have ChannelNewsAsia, Bloombergs or Reuters screens in the windows of banks, hotels and even ordinary shops so it is incredibly easy to monitor the markets. When I am travelling with my wife in Europe and the States, it is not as convenient but the information is available by simply ringing a one of my brokers and asking what is the Euro/Usd price.
However, I often get asked by my wife that if I know the price that I want to get in at, why do I need to watch the market? Its a question I don't really have an answer for.!!

I am looking forward to "getting back in the saddle" and trading again this week.

Jacko