Dirty Harry was the best cop ever, of course. He was methodical and reliable, and had the odd hunch, which helped. He also reckoned that he had pretty good reactions if someone wanted to draw a gun on him. Hence the provocative phrase: ‘Go ahead, punk, make my day’… goading a low-life to try and pull a gun on him.
(Picture by Simon Ward, via Flickr)
As a trend-follower, I too need to react quickly. I thought I would give you an example of a trade that went against me. This does happen regularly to trend followers. The important issue here was that I ended up losing more money than I should have done, because I did not react quickly and implement my trading rules. I was not Dirty Harry!
Mistake number 1: I did not open my trade as soon as I got a signal (arrow 1) I waited ‘for confirmation’ of a trend starting. In other words I waited for the up-trend to continue before buying (green arrow). This is bad news for two reasons: Firstly, I’m paying more for something that I hope to profit by when I exit the trade, so it reduces my profits. Secondly, if I get a ‘sell’ signal, fairly quickly then the price will have fallen by a greater amount. Not good!
Mistake number 2: I did not close the trade as soon as I got an exit signal (arrow number 2). I had hoped that the price would jump back up again and rise into a profitable trade. But no, the price continued down and I sold at an even lower price (red arrow), and ended up losing more money than I would have done if I had exited as soon as I got a signal.
Please don’t misunderstand me. My trading system is very simple. It is my emotions that sometimes get in the way and I sabotage the process.
Note to self: what is the point in creating a system and then not sticking to it?!
Anyway, my system has generated a new BUY signal in one of the asset classes. Which one is it? You’ll have to watch the video to find out!
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See you next week!