Wednesday, June 18, 2008

Perception and Trade Management

Trading chart patterns is an inexact science. Two smart and experienced traders can view a chart in very different ways, based on their biases, mental makeup, psychology and a variety of other factors. Let's take a look at SWN:



An argument can be made for three different chart patterns. One with a bearish outlook might see a double top forming. A bullish position trader may argue a trend is in place with a buypoint around the moving average. A more aggressive swing trader would note that an NR7 has printed and the time for entry is now.

Who's right? I don't know. What's more important is which trader will manage the trade better. If you want to have a long and productive trading career, you must be obsessive about managing your entry exit and risk. I would rather be the guy who was wrong about this pattern but only took a small loss, than the guy who nailed this trade, exited too soon, and used too wide a stop on his next trade.

2 comments:

Kevin H said...

Ahh... excellent post.

Managing the trade is important especially in minimizing losses and letting gain run.

Frank said...

Excellent post. All three are possible but it is the broad market that will determine the short term move. Personally I think the uptrend is still in tact but I will wait for it to come back to moving average.