Short term trading is all about price oscillations – generally short term price oscillations.

The assessment of risk is often related to the particular trading system used, but for short term trading there are a two assessments of risk that are likely applicable to any system.

First, and probably most important, is the trend risk assessment. I look at the trend in all three of my intra-day charts. I look for two things in each chart – direction of the trend and strength of the trend.

Strong trends, all moving in the same direction – for all three charts – means the risk of trading against the trend would be very high. Savvy traders seldom will attempt a trade against such a trend setup. Trading with such a trend requires an entry at a good point in the oscillation cycles on the fastest intra-day chart.

However, trading against the trend in the longer intra-day charts (particularly if the trends are not really strong) may be done using the faster charts (if it has an opposite – or at least – neutral trend). But only if the oscillations in the faster chart offer sufficient amplitude and frequency to allow a trade – in consideration of the additional risk involved in trading against the trend in the longer intra-day charts.

That leads to the second thing I look for in assessing risk – the oscillation amplitude and frequency in each chart. Oscillations must have sufficient amplitude to offer a profitable trade – and sufficient frequency to get the trade done before the trend pressure of the longer charts squash the move.

Ideally I want to enter my trade at the earliest point in the beginning of a price oscillation. There are two ways to make such an entry – wait until the oscillation starts in my trade direction before entering – or anticipate the oscillation turning point and make an entry there. The later is obviously riskier than the first. When using the later, I often use the “market if touched” order to enter the market so that I will get a good fill if my assessment of the turning point is correct. I trust my SRVs enough that I use this technique frequently and effectively.

Oscillation assessment requires time and good visual analysis abilities. And I do not think that I could it very well without my SRVs.

Most of my other assessments of risk are specific to my trading system, Trading Between the Lines (TBL).

Any short term trader will likely be better off by paying close attention to the above two risk areas regardless of their trading system.

You can read all about my complete trading system in my eBook, See the Music of the Market, currently available at a big discount at www.tradingbetweenthelines.com.

 

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See the Music of the Market

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