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Entering a trend at a new high
If you make a bad trade and you have money management you are really not in
much trouble. However, if you miss a good trade there is nowhere to turn. If
you miss good trades with any regularity you're finished. For example, let's
say the market moves rapidly through your buying zone and you miss it, you miss
your buy signal and instead wait for a retracement to maybe buy cheaper. But,
the market just keeps going higher and higher and never retraces. Now what do
you do? There's a great temptation to reason that now it's too high to buy. If
you buy it now you'll have an initiation price that's too high? No, the
initiation price simply won't have the kind of significance you suppose it will
have after the trade is made. You can't miss these trades. Trading systems
force discipline to make sure these trades are not missed.
Suppose two traders, A and B, who are alike in most respects except the amount
of money they have. Suppose A has 10% less money but he initiates a trade
first. He gets in earlier than B. By the time B puts the trade on, the two
traders have exactly the same equity. The best course of action has to be the
same for both of these traders now. Mind you, these traders have very different
entry prices. What this means is that once an initiation is made, it does not
matter at all for subsequent decisions what the entry price was. It does not
matter. Once you have made an initiation, what your initiation price was has no
relevance. The trader must literally trade as though he doesn't know what his
initiation price is.
William Eckhardt
Forex Under the millstones of the banks
Futures Hoping for the trend and finding chaos
Options Above average? You will still lose!
Stocks The negative-sum game for investors
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