Wednesday, January 19, 2011

Intraday trading part II

Over last several days I’ve got few e-mails from people asking when to exit their positions and this blog post is going to address that important issue.

I’ve tried to explain in post titled Trending or range day what one side of the medial is and how to distinguish between trending day and range bound day. Today I will take a look at daily range distribution and see what it is telling us.

First chart shows daily range distribution for ALSI from just before December 1st, 2008.
Second chart is from May 4th, 2009, date on which, I would say, our market changed. Volatility evaporated, market changed from follow through to mean reverting and trend following systems started to struggle, while profits on some of them got halved form 2008 to 2009 and then dropped again significantly in 2010. 
In this sample, there are 431 trading days and one can see that only 23 days or 3% were with daily range above 700. Most of the days were in the range from 200-500 points.

So, why are we publishing all these numbers and charts?

I would like to couple this information with the goal that was made in post titled How to become intraday trader. Stated goal was to get 10% of the trading range in the first three months of trading. To get 10% of daily range one must make at least 40 points in a day. So, answer to readers who emailed asking about exits is a very simple one: If you enter position and it went in your favour 50 points I would recommend to close it and wait for next signal. This will be good example to practice your discipline. As we grow as intraday traders will shift this boundary and will try to start taking more points when they are available, as final goal is to trade only when there is reason to trade.

And to finish off, I would like to quote one blogger: “Success doesn’t come easy, especially in trading. But if you can focus on your game and not dream of the million dollar carrot on the horizon, I am sure you will succeed.”

Trade with trend!

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