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An Approach to Position Trading
By: London NYAM from the Global-View Forums

London NYAM 13:28 GMT May 28, 2008
Subject: An Approach to Position Trading   

An Approach to Position Trading:
When approaching a position trade I am usually anticipating a move on a very large scale. This would usually mean that the set up for the trade is on weekly or daily charts. I would anticipate a holding period of at least three days and as long as a month. This could either be trading into a correction in anticipation of a move with an established trend or against trend in anticipation of an immanent trend reversal. The latter is often trickier than the former as one needs to have some pretty good experience with the warning signs of an end of trend and a good idea of where profit taking may start to initiate new entrants contra trend (and with you).

The method I use with trend positioning is essentially a trade campaign. In advance I would work out the point at which the trend is actually failing and a deeper correction or indeed a reversal is likely. This would essentially be the base of the swing low (off the last correction) to the recent high. On daily chart we would want to see indications of a short term correction brewing and an opportunity to hop on board the Trend at cheaper prices (or dearer if the trend is down). The simplest way is to, in advance allocate your total position size (for me in a trade I expect to hold for 1 week or more I will often risk 5% of my capital whereas in as a day trade I would risk no more than 1%-2%.

Then I would analyze the likely retracements for the current expected correction. The obvious ones are 23.6% (indicative of a strong trend) 38.2%, 50%, 61.8%, and 76.4% with a last resort 85.4% (as a last stretch for the end of a wave 1 in EW). Then I would allocate larger position sizes the deeper the correction so for example

23.6% 0.5%
38.2% 0.5% (or "double down")
50% 1.0%
61.8 1.5%
76.8 2.0%
Final stop 100% (Here the Trend is cracking and you have misinterpreted the strength of the correction)
This can be modified with intermediate partial stop-losses to lower the risk if the correction deepens while keeping you sufficiently in the trade for the time the resumption of trend occurs. Playing around with a spread sheet that inputs your price levels (and stops to complicate the campaign) in advance helps speedup the process).

Trading for a correction is much trickier and requires projecting tops. I’ll leave that one out as it is not for ideal as a learner strategy.

 
 

 



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