Timing Your Trades
Timing is everything. You've heard it a million times. It's a
worn-out, over-used cliche that happens to be true. No matter
what you're up against, timing is everything. If you're a
futures or stock trader, timing is the only thing between you
and the poor house.
It's a statistical certainty that if you play a zero-sum game
with unlimited downside risk long enough, you will lose
everything you own. The number of traders that don't understand
or ignore that fact astounds me. If the above is news to you,
then wake up and smell the coffee my friend, because you might
very well be a train wreck waiting to happen.
Timing is not just simply buying low and selling high. It's not
just jumping on or off at the most opportune moment. The most
important element of timing is to understand and cope with the
duration of your trade. That is, the time-frame in which your
trade matures and develops.
System traders using technical or fundamental indicators analyze
data looking for entry and exit signals. Once an entry signal
has been acted upon and a trade entered, one generally waits for
an exit signal. Only three things can happen to a trade at this
point: - It flat-lines and price goes nowhere;
- Price increases and we have a paper-profit; or
- Price decreases and we have a paper-loss.
That's it! Only three! Now if any one of the above has occurred
in a time frame that you can't explain, you're trading strategy
is fundamentally flawed. And, more importantly, it's only pure
dumb luck that's keeping you from going broke and then some. If
this applies to you and your trade, get out now.
Not only must you understand when to get in and out, you must
have a clear and profound understanding of how long it should
take to meet your trading goals. The longer you are in a trade,
the greater the risk you are exposed to even if price does
nothing. Remember, if you stay in indefinitely, you will lose.
It's not if, but when!
The next time you decide to jump into the market, know full well
how long you plan to spend in that market. The planned duration
of your trade is directly correlated with the risk you are
assuming. Anything outside that time-frame means you must
reassess your position and act decisively. As it turns out, my
friend, timing is more than everything: It's the only thing!