What Matters is Profit!

Today's guest blogger is Craig Pritchard author of Trader Craig's Market Edge. Craig wrote about what drives him to enter and exit a trade. So without further delay, here's what really matters to Craig

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Prior to reading the little book titled The Adam Theory of Markets or What Matters is Profit by Welles Wilder, I had been consistently losing money trading.  Most of my efforts had been expended in trying to find the perfect method for predicting market movements.  I had spent a considerable sum on subscription services to a variety of well known trading gurus that claimed to have solved the riddle of the markets only to be disappointed time and again.  While I do not use the method described in the book, a story in the book helped changed my perspective on the markets.

In the beginning of the book, Mr. Wilder tells a tale about an aspiring trader who is attempting to explain to his young daughter what he is doing.  As he shows her his trading screen he tells her that he is buying because the market is going to go up.  He is certain of this because special numbers called the Azerhoff numbers are signaling that the market is going to go up.  After listening to his explanation, the young daughter replies, “but daddy, it looks like it’s going down to me." Frustrated, the aspiring trader tries to reassure his daughter that the Azerhoff numbers mean that the market will go up.  Again she responds, “It still looks like it’s going down to me."  Eventually, the frustrated trader exits the trade for a loss.

The point of the story, of course, is that all market indicators and theories are secondary to price and even a young child can look at the chart and see which way the price is going.  If we are long a market, we profit when we sell at a higher price than we bought, regardless of what the indicators or prognosticators say.  Ultimately, it is always price that determines our actions in one way or another.  Certainly, we can use indicators to help us anticipate, i.e. be prepared for, changes in trend, but the movement of price alone determines the trend.  By learning to see and follow the trend in price, we can come to accept what the market gives us without being overcome by the emotions of fear and greed.  Trading can then become an enjoyable and profitable experience.

The question arises as to what trend to trade.  The trend can be different on different time frames.  The approach that I have found that works the best is to look at three different time frames.  Two examples are Monthly and Weekly, Daily and Weekly, and Daily and Hourly.  The smallest time frame is the trading time frame.  When the higher two time frames are in agreement, we enter trades in the same direction on the smallest time frame.

Marketclub’s "Trade Triangle " Technology is a good example of a method that employs the above approach.  The Monthly trend is up when the market makes a 3 month high.  The Weekly trend is up when the market makes a 3 week high.  We enter long on the Daily time frame, i.e. on a specific day, when today’s price exceeds the high of the prior 3 weeks.

This same approach can be generalized to any number of trend following methods.  For example, moving averages, macd, swing points and volatility breakouts can all be used to identify the trend.  On Friday January 2, 2009, the major indexes closed above their 20 day 2.0 SD Bollinger bands giving an exit signal for short positions using a volatility system.

Currently, there is a great deal of speculation about the current Elliott wave count for the markets.  Many traders are increasing short positions in expectation of a final fifth wave down to new lows, but that may be a dangerous and costly position to take.  The Monthly trend is still down, but the Weekly and the Daily trends are up.  At the same time many market commentators have already declared an end to the bear market.  This, too, may be a dangerous and costly position to take given the direction of the Monthly trend.

Even though the market stance is neutral using the Monthly, Weekly, Daily time frames, we can still profit from a potential rally in January.  Since the Weekly and Daily time frames are now up as long as the market does not make a 3 week low and trades above the prior week’s low, the hourly time frame can now be used for entries and exits with a long bias.  Ideally, we should wait for a pullback that does not break the prior week’s low, and then enter long on the hourly chart on a breakout above the prior day’s high.  Trail a stop using a 3 hour low or a break of the prior day’s low with a view to exit at predetermined targets.  Remember to adjust your risk on the trade accordingly, and do not trade this method if you cannot watch the markets intraday.

In conclusion, speculation about potential market movements can help us realize possible outcomes and manage expectations, but we should only trade the price for profit and not opinions and expectations.  Short opportunities may come again soon if the Weekly trend turns down, but don’t bet on it just yet.

Best,

Craig Pritchard

www.tradercraig.blogspot.com

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The ideas and opinions expressed above are those of Criag Pritchard of "Tradercraig.blogspot.com" and do not necessarily reflect those of INO.com, MarketClub or staff members.

5 thoughts on “What Matters is Profit!

  1. Thanks for the links. I still dont get it - these links merely show me the basics of trading with the Triangles - which I fully understand. Unless I'm missing something here, it does NOT show me how to filter these set ups to avoid trading in choppy/consolidating conditions.

    Thanks

    Mike

  2. Adam - I like your style and outlook on life. In fact it comes across on your videos - you're the kind of guy I like dealing with!!

    Thanks - I knew there had to be way of "not taking every Triangle" Where do I learn about this filtering method??

    Hambe Kahle
    Mike
    Cape Town

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    Mike,

    Please see this link to understand how to interpret the Trade Triangles using our filtering approach. If you have any further questions feel free to call us at the office: 1.800.538.7424.

    http://broadcast.ino.com/livesupport/index.php?_m=knowledgebase&_a=viewarticle&kbarticleid=32&nav=0,15

    Best,

    The MarketClub Team
    1.800.538.7424


    su*****@in*.com











  3. Adam, I appreciate your honesty - thank you! I think the site is great and I must say to you that apart from my risk issue I think the Triangles are pretty cool and if you catch a trend you'll make money riding it. But......one can take quite a few knocks, as I have, while the market is consolidating and chopping around-which is 2/3rds of the time. Does the Triangle system have a way of avoiding these situations??

    Hambe Kahle

    Mike

    Mike,

    Honesty is the ONLY policy in business and in life.

    What makes our Trade Triangle technology work is filtering the trade. When you filter your trades it cuts out many whipsaw trades.

    Cheers
    Adam

  4. Hi Adam,
    I am a trial user with mixed results. One thing that concerns me with triangles is Risk. Risk is number one with me and is the only thing I have control over. I am always watching my risk/reward ratio like a hawk. But with triangles I lose control as I have no set profit target and no set stop loss strategy.I enter a trade not knowing my ratio!! I sort of trade hoping for the best - and that doesn’t suit me! Comment??
    Mike

    Mike,

    Thank you for your feedback.

    Risk is a very important element in trading and perhaps the most important of all the disciplines you need to trade successfully. The secret to our "Trade Triangle" technology is that it lets your profits run and contains your losses. MarketClub may not be perfect for you, we think it's a very good start for most traders and can act as an adjunct to their own training styles.

    Every trader is different and has a different personality and approach to the market. Sometimes what works for one person will not work for another person. Trading is just like life.

    I would say that if the "Trade Triangles" are not working for you, then maybe it's just not right for you. Therefore you really shouldn't be using them in your trading. I know this may sound negative to some people but the reality is the reality of the situation.

    Every success no matter what direction you take in the marketplace. I believe that by following the risk factor in trading that you are on the right track to be a successful trader.

    Adam

  5. The question arises as to what trend to trade. The trend can be different on different time frames. The approach that I have found that works the best is to look at three different time frames. Two examples are Monthly and Weekly, Daily and Weekly, and Daily and Hourly. The smallest time frame is the trading time frame. When the higher two time frames are in agreement, we enter trades in the same direction on the smallest time frame.

    Marketclub’s “Trade Triangle ” Technology is a good example of a method that employs the above approach. The Monthly trend is up when the market makes a 3 month high. The Weekly trend is up when the market makes a 3 week high. We enter long on the Daily time frame, i.e. on a specific day, when today’s price exceeds the high of the prior 3 weeks.
    ?????????????????????????????????
    Howdy!! Confused. Mr. Hewison would say "Monthly
    for Trend and Weekly for Entry and Exit Points".
    I would like to know how/why your method works.
    Sounds very active in and out.
    Please and thank you!!
    -- D --

    Doug,

    Thank you for your feedback. You pose a very good question, and one it's very difficult to answer. Why does the method work? It's hard to say, the fact is it just works and I've seen, and have been around the markets long enough to see it consistently work over three decades. Some things in life cannot be explained, this may be one of them.

    What I recommend to anyone that's new to MarketClub is to kick the tires, check out the signals over time so that you become comfortable with them, and then trade those signals if you would like to. We have a post that's coming out on Monday 12th of January that I think you will enjoy. It will help you understand just how important it is to have a game plan for trading.

    Every success,
    Adam and

Comments are closed.