The chart is a lot like a poker table.  You can see “some” of your opponent’s cards,  but not all of them.  Each candle close is like another card being flipped.  It changes the probabilities of your hand (position) winning.  To make the proper trading decision you have to know two things:  1.  The probability of a stop out and 2.  The relative value of the stop out or profit taking.  I’m going to over-simplify this.  There is a litle more to it, but not much, and I think that explaining the opportunity cost of taking profit might just cause too much confusion, and will cause me to have to answer too many damned questions   .Take a minute to answer these questions:

1.  Which choice do you make?:

A.  a 100% chance of winning $50.00.

 B.  a 50% chance of winning $25.00 and a 50% chance of winning $80.00.

Most people would choose option-A.  Did you?  The truth is that option-B is the proper choice for anyone wishing to make money.  Option-A is worth $50.00 and Option-B is worth $52.50.  It’s not a HUGE difference in this case, but option-B is slightly better than option-a. 

Once you have a trade with profit locked in, or 0% probability of a loss, the decisions making process becomes much easier.

Let’s look at another example.  Which choice would you make?

A.  A 100% chance of making $50.00

B.  A 50% chance of breaking even and a 50% chance of making $125.00.

This one is pretty clear.  Option-B is clearly the proper business decision.  It’s worth $62.50 while option-A is only worht $50.00.

One more.  Which do you choose?

A.  20% chance of making $200.00 and 80% chance of making $20.00

B.  100% chance of making $75.00

Now the options are a “little” murkier.  Option-A has that big possibiliy of a win.  Many would be tempted to take that bet.  Option-A, however is only worth $56.00.  (.2*200 + .8*20).  The proper business decision in this case is to take your $75.00 and run. 

The process is the same when you could take a loss.  You always have a probability of hitting your target, which gives you the probability of hiting your stop loss first.  Just add that loss to your decision making process and you’ll be golden! 

This is how you properly cut your losses and let your profits run.  Trading is a business.  Each and every candle close gives you a different business decision to make.  The odds of your winning and losing change with each and every tick of the price action.  Smart traders make the proper business decision and stay in this game for a long time. 

Good Luck and Happy Trading!

Tim

Hello everyone.  I wanted to get out a quick note to everyone.  This week has been very good so far.  The markets are breaking out and my “Reaper” system has started presenting solid signals.  You’ll see plenty of these signals in the coming months. 

The important thing for you to note at this point is that we have already posted a 6% equity increase for the week.  I strongly recommend that you STOP trading at this point until next week.  I prefer to stop trading in my accounts when I’ve reached 3% – 5% for the week.  This practice alone and resulted in massive equity growth over the years.

It’s much easier to make 5% per week than it is to KEEP 5% per week.  The difference is what usually separates successful traders from the rest.  I know that the lure of fast profits gets to you sometimes so let me show you something that you already probably know, but somehow most people forget.  If you earn 5% per week, every week, for two years, a $1,000.00 account increases to $152,229.00!  It’s not that easy to make 5% EVERY week, but it becomes much easier when you STOP trading once you’ve hit that goal. 

The nice thing is that we have printed a 6% profit early in the week.  That extra 1% buffer is risk-equity for another trade!  I’ll continue to post trades when they present themselves, but already consider this week a 100% success.

The following signals have results in 2% equity increase each this week:

Buy USDCAD @ 1.0352  SL: 1.0333  TP:  1.0390  Risk = 1% (Took Profit +2% Equity)

Sell EURGBP @ .8798  SL:  .8822  TP:  .8750  Risk = 1% (Took Profit +2% Equity)

Sell AUDUSD @ .9268  SL:  .9282  TP:  .9240  Risk = 1% (Took Profit 21:01 +2% Equity)

This style of trading works well in most markets.  It’s nothing new.  It’s not a new or different system than I’ve been using since the start of MME.  It’s just a different way of delivering the same trades that you’d get when I am using pure price-action / support-resistance.  The real value is that it allows you to trade your own systems with the added benefit of having your technical analysis outsourced. 

This week alone, I’ve provided five trade setups, and have had five winners totalling 342 pips.  That’s not bad for holiday trading, and some of the most stress free trades I’ve sent this year!  Some of you have gotten even more pips from these trades! 

If you have any questions regarding how to use the daily trrade plans or weekly forecast, don’t hesitate to ask.  I’ll be more than happy to help out any way I can.

Tim

Market Forecast for USDJPY

Good Trading!

Tim

Forecast for 14 December 2009 – EURUSD

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I close ½ of a position because it is usually the fastest way to protect all of my money.  Sure, I could move the stop loss to break-even, but unless there is a technical reason to move the stop loss, the impact is usually an increase in risk to the trade.  I’ll talk more about the different types of risk later.  For now, we’ll concentrate on the risk-free trade.  My goal as a trader is to continuously reduce risk.  When I am able to do that, making money just happens. 

• Assume a trade in which the most I can lose is 100 pips. 
• When the trade is positive by 100 pips I close out ½ and collect some cash from the trade.
• At this point, the trade can stop out at break-even, or continue to run in my direction. 
• As the trade progresses, I move the stop loss to the new “technically correct” price.  This locks in profit with each move.  When and where I move the stop loss is dictated by the system I am trading. 
• I allow the trade to stop out for a profit. 

It doesn’t matter how I get to ½.  It can come from any combination of the original entry, Scale2, Scale3, etc.  It just doesn’t matter.  The point is to convert ½ of the risk into profit.  At this point, the worst case scenario is a break-even trade.  There are some combinations that are a little more profitable.  I’ll get to that later.  I don’t know about you, but I sleep like a baby when I know that I can’t lose money, but still have the ability to make money from the market.  At this point, I am earning FREE MONEY!  I don’t have to do or risk SQUAT!  Remember, the market is a greedy bitch and will take every dime that you offer her.  Our goal is to risk very little, and risk it for a relatively short period of time.