We frequently talk about the fact that discipline is required to truly be a
successful trader, and we're going to stick with that philosophy. The most basic
disciplines are to take profits when you reach your target, and cut losses when you
hit your stops (If you can do that, you've mastered the hardest part).
To make an exception to those rules implies that they aren't really rules at all. Is
there ever a justified reason to make an exception? Not really, since the first
exception makes subsequent exceptions much more likely. But if you must, there may be
one understandable (yet not exactly justified) reason to temporarily ease on the
rules. That exception? If the trade is hitting or surpassing your price target that
day, and you're going to close it out by the end of that day, then it may be to your
advantage to wait till near the closing to exit your trade.
Why an exception such as this? When you get a major price movement in a single day,
the closing price is typically at the high or the low for the day right at the close.
Notice I said on a day of major price movement. A minor change of half of a percent
by late in the session may result in no net change at all for the day. But if a stock
has increased (or decreased) by a relatively large percentage by mid-day, there's a
good chance it'll keep moving that direction as the closing bell approaches. By
waiting till very late in the session, you may be able to squeeze out a bit more
profit. (Obviously this idea only applies to trades that are becoming profitable. If
the trade is going against you in this manner, get out as soon as possible.)
As always, the idea is best illustrated with an example. Let's take a look at some of
the days of biggest change for AMGN. Take a look at the closing price on those days
that saw big changes from the previous day- they're at the very ends of the price
bar. If you had correctly foreseen the price direction, your most profitable exit
would have come at the end of the day.
AMGN - Daily Chart
Why is this? There are several probable reasons. The most likely is that euphoria is
self-feeding. Investors see a little growth, and start buying, which incites more
growth, which incites more buying……etc. In other words, price increases
beget more price increases. It's not until the day is over that euphoria dissipates
and reality sets in. That's why it's important that you make your exit at the end of
THAT day, and NOT the next day. As you can see, those explosive days often result in
explosive reversals the following day.
Are there exceptions to the rule that big days close at the ends of price bars?
Absolutely. Making this exception is not for the faint of heart (nor for the trader
who can't handle regret), so use caution if you choose to make exceptions to your own
rules. One simple solution could be to turn your target price into a stop price when
your target is reached. Then if for some reason things turned against you, you're
still going to make a profitable exit. Remember, this exception only applies if the
trade is moving in your favor and if you close out the position at the end of that
day.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
#forex4u - chat forex MIRC
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