Examine the following diagram : Notes below the diagram >>>
By
tymen1 at 2008-04-29
There are 3 separate drawings showing 3 different short trading cases. A red candle is shown for each case and a red stop loss line is shown. The base is shown with a blue dashed line from which the short trades start.
There are 3 legs to each trade and each trade is opened with 2 lots.
1st case
In this case 1 lot was closed at the end of the first leg thus giving a small profit. (say 10 pips).
The 2nd lot is dragged thro the pullback for no good reason. It accomplishes nothing and we simply have to wait until it goes down again to generate more profit.
It does this on the 3rd leg.
2nd case
Same as before except that at the top of the 2nd leg
another lot is added. The computer averages the two lots and the new entry is lower down from the top but between the top and the blue line.
The price goes down on the 3rd leg but this time we profit with
2 lots instead of one.
3rd case
In this case
both lots are exited at a very small profit (say 10 pips).
The pullback (shown in green) is totally risk free since there is
no trade!!
We then re-enter the pullback at the top with two lots again and it goes on to profit as before.
This 3rd case appears to have some real advantages. Both short legs were traded with 2 lots giving maximum profit.
The pullback was totally risk free since there was no trade at this time.
But are these advantages real? And can they contribute to a better risk/reward?
We will find out as we now consider some longer term trades.