When Not to Trade

Often a losing trade is the result of simply trading at the wrong time. I have written much about when to trade and even some about when not to trade. Today I will stick to when not to trade.

I am going to strip away all the other technical indicators I use in making trading decisions and just use my SRVs. The SRVs I use are truly important; because it is with them that I am to See the Music of the Market – and to construct my trades visually.

Figure 1

The chart in Figure 1 shows the 10 year US Bond chart for today, 12-9-13. The chart is configured with 450 ticks per bar.

Notice the 5 horizontal lines, three light blue and two light yellow. I call them primary and secondary SRVs respectively. Each is line derived on Sunday afternoon before the trading week begins.

Notice that the price bars movement was pretty well foretold by my SRVs – but I did not make a single trade in this market today. Why?

Using the price scale on the right axis – and the price bars themselves it is obvious that is only a single tick between the bottom SRV, secondary line shown in yellow, and the primary line above it, shown as a light blue line. Continuing on up the chart there are 10 ticks to the next primary, another two three ticks to the primary above it and only 2 ticks on up to the final yellow line, a secondary SRV.

Our minimum potential profit to do a trade in this market is 8 ticks because we have to risk four ticks.

Trading an oscillation with a potential of less than 12 ticks price movement does not qualify as a minimum trade. Only a single trade could have possibly qualified for my trading method on the above chart and I would have had to be up and at ‘em at 4:00 AM to have gotten it.

Trading on a day like this might make you a small profit – but it would be luck – and traders that depend on luck seldom last long in the business of trading.

As I stated yesterday, short term traders must think like a mercenary and assess the risk as well as the potential reward before entering each trade. I have found no better way to do that than my SRVs.

 

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See the Music of the Market

The unique trading method that is Trading Between the Lines