Timing Your Trades
Timing is everything. You have heard it a thousand times. It is a tired, over-used cliche that happens to be true. Regardless of what you are up against, timing is everything. If you are a futures or stock dealer, timing is the only thing between you and the poor house.
It is a statistical certainty that in case you play with a zero-sum match with unlimited downside risk long enough, you may drop everything you have. The amount of dealers that don't know or ignore that simple fact astounds me. If the above is news to you, then wake up and smell the coffee my buddy, as you could very well be a train wreck waiting to happen.
Timing isn't just simply buying low and selling high. It is not just jumping on or off in the most opportune moment. The most essential element of timing is to understand and deal with the length of your trade. In other words, the time-frame where your trade develops and evolves.
System traders using fundamental or technical indicators analyze data searching for entry and exit signs. Once an entry signal was acted upon and a transaction input, one normally waits for an exit sign. Only three things can occur to a trade at this point:
1) It flat-lines and cost goes nowhere.
2) Cost increases and we have a paper-profit.
3) Cost declines and we have a paper-loss.
That is it! Only three! If any one of the above has happened in a time frame which you can not explain, you are trading strategy is fundamentally flawed. And, furthermore, it is only pure dumb luck that is preventing you from going broke and then some. If it applies to you and your trade, get out now.
Not only must you know when to get in and out, you need to have a clear and deep understanding of how long it should take to satisfy your trading objectives. The longer you're in a trade, the greater the risk you're exposed to even if cost does nothing. Bear in mind, if you keep in indefinitely, you may lose. It is not if, but when!
Next time you choose to jump into the current market, know full well how long you want to spend in that marketplace. The projected duration of your trade is directly correlated with the risk you're assuming. Anything outside that time-frame means you have to reassess your position and behave responsibly. As it happens, my buddy, timing is greater than everything: It's the only thing!