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I am more concerned with the return of my capital, than the return on my capital. --Mark Twain
I would add Mark Fisher's concept of time here as well. Time is the element most traders tend to neglect in trading. Mark recommends using both a money stop and a time stop.
If price is around the same place you entered after 15 minutes.......
It's time to get out.
If everyone else can get in at the same price you did, then how good a trade can it be, says Mark.
Timeframe traded obviously would be a factor. If you trade off of 3 min chart, then 15 minutes later your trade has gone nowhere, it is time to re-evaluate. On the other hand, if you trade off a 1 hour chart, 15 mins would not matter so the time is relational to the timeframe traded.
ACD really has some Market Profile concepts embedded within it. The concept of time in Market Profile is how we define market acceptance. That is why he says wait 15 minutes before taking the A up or A down. You want to wait for the market to accept the new "breakout" price. However, the longer price stays there, the more likely that price becomes entrenched in this accepted area. Market Profilers know this as Value and the Value Area.
The point, as a trader trying to take advantage of price movement, movement must be thought of in both price and time. Price movement is obvious. Time is less so. But if you go long at x time and x+15 price is still there, movement in terms of time is null.
I think of a hobo in New York who wants to get to Seattle. What is the best way for him to do that? Get on a train heading east and slowing down, hoping it will turn around and head west. Or get on a train moving west and picking up speed. Getting on a train going east, clearly isn't the best. Nor would getting on a train that is pointed west, but still in the station 2 hours later. The hobo wants a train both pointing west and picking up speed (distance X time).
Time in a trade represents risk. For the hobo sitting on a train that is going nowhere is added risk. If he gets caught, then he gets kicked off and taken to jail. Therefore, there is less risk associated with trains that are moving. The longer the train is stagnant, the more chance an employee will wonder onto the car he is hiding in. |
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Very eloquently put PivotProfiler. That is precisely the reason I got out of the trade. However, I should slap my own wrists because I have not tested the time-stop theory for myself in backtesting (too much system backtesting to do), but I do like the theory of it. However the risk in this case in getting out was that price moves in the direction I was positioned in once I have gotten out. The risk in this case is opportunity risk, and in this business we need winning trades to make money, right?
I would be interested in what you have in your own trading plan with regards to time-stops. Would you share? Perhaps have a chat over skype or something?
Thanks!
keymoo