When you trade with a system, you’ll find that a few times a year the markets just stall right when you have a few positions on. Once this happens, it’s important to remember that you have to play superior defense and protect your capital.
Professional traders sometimes use what are referred to as “time stops” to offset risk. Here’s how to do it…
If after you get long, for example, and the market stalls and there is no real movement in your position up or down over the next 2-3 days, offset the trade and go to cash.
That might mean a range of $0.20 up or down from your entry or 1/4 point if you trade commodities. You can define what you feel your definition of the market being “flat” is.
The best trades make you money right away. From looking at my own backtests, I found that upwards of 70% of these trades that “stalled” eventually lost money. I pre-empted that from happening by offsetting them before they could get stopped for the max loss that I was willing to take on the trade.
So, I wasn’t technically making money, but I was “losing less.” Either way, I had more equity in my account that had I not utilized this strategy.
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