"You Can't Have It Both Ways;
Or Can You?"

Hi Day Traders,

One of my subscribers emailed me this question:

I have a good set of trading rules but often mis-
use them or just ignore them. I often have a 
small profit after a few minutes and later
scramble just to get out at breakeven. Should I
take the profit or hold until the program takes
me out?

My answer:

That depends on many factors. However, if your
system says to hold and you take profits,
you are not trading your system, are you?
Is your discretion better than your system?
Mine usually is, but I've been trading for a
long time.

You have to give a trade a chance to work. Many
traders move their stop to break even too soon.
you want to see the market move away from your
entry, then move back toward it, and then move
away again and take out the previous swing point
that was created before thinking about moving
your stop to break even. OR, just take a quick
profit rather than moving your stop too soon.

Of course, this is assuming you are not trading
breakouts. I hate breakout trading. I take
very few of them.

Here is another question:

Often my first trade is a winner, but I often
keep trading and give up a good portion of my
profits. On other days, when the trend is 
friendly, I can rack up good profits.
It seems as though you can't have it both ways,
or can you?

My answer:

Sometimes you can, but it is usually just luck.
It is usually better to be consistent.

However, there are certain guidelines.
If the market had a big move the day before,
you are usually better off to take a quicker
profit the next day, because it is more likely
to be a consolidation day. On the other hand,
if the market has been in a relatively tight
range with no real direction one day; then the
next day you should probably hold for the
bigger move. Of course, it may consolidate
for more than one day.

Yesterday, May 9, 2000, was an example of that.
The previous day's range had been very tight,
so I felt the chances of a big move were good.

The June S&P opened at 1439.50,
above the previous day's high a little. It then sold
off to 36.00 and I recommended selling 38.40. The
market rallied to 38.50 triggering our limit order and
then sold off to a new low for the day of 35.50.
I then placed a stop at 38.80, just above the last
swing created. I told the Emini traders to put their
stop at 39.50 or above. Normally I would have placed
the stop above the high of the day since it was so
close, but I was concerned that if the high was taken
out, we might get a lot of slippage on our stop.

Well, wouldn't you know it, the market rallied back up
to 39.00 before collapsing, stopping us out (except 
for the Emini players). That turned out to be a
costly mistake in terms of lost opportunity, but that
same strategy has probably saved me as much on many
other trades. Oh well, if you can't learn to let
things like that be like water off a duck's back, then
you should probably give up trading.

I had to wait until almost noon EST before I was able
to get in. We sold 1427.40, taking our profits much
too early at 23.10. But after the market has already
had a huge move, I find it's usually best to be
content with smaller profits. Choice Daytrades ended
up the day up +7.30. 

It could have easily been a whole lot better, but then
that's almost always the case. 

All in all when you consider that last week we were
up 31.00 points, that averages to 6.20 points per
day, so we actually did better than our average day.

You have to tell yourself things like that when you
are disappointed that you missed a big move.

Later.

Yours for success,
Ellery Coleman

The trades referred to in this article are trades that were sent to our Choice Day Trades subscribers as they happened. We have no way to verify whether or not all or any of these trades were taken in real time since we did not take them in our account. Therefore they should all be considered hypothetical.

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