this week i’d like to examine something simple yet so very crucial to planning your trades: Time Frame!
determining the timeframe of your trade allows u to adopt suitable entries, exits, cutloss levels and position size.
assuming these traders have the same amount of trading capital and that they will only risk 2% of it per trade. (that means in event of cutloss, the absolute dollar loss will make up no more than 2% of their total trading capital) there are other ways to manage your money, such as contract size or unit per capita etc etc. but i prefer to use percentage of total trading capital. will touch more on this later =)
a day trader (in and out of a position within that same trading session)
would probably have a tight cutloss(maybe 4 bids), and a large position size(maybe 10 lots), which he will close out before the end of the trading session.
a swing trader (1-14days thereabouts..it’s not strictly defined)
would have a larger cutloss tolerance(maybe 10 bids), to give price more room to move. thus, in order not to lose excessive amounts of money in event of a cutloss, his position size will be smaller(maybe 4 lots).
a slightly longer term trader (a few weeks to a few months, beyond that, the line blurs as to whether he’s an investor or a trader)
would have an even larger cutloss (maybe 20bids) tolerance to give price room to move in the larger trend. his position size will likely be even smaller(maybe 2 lots)
each time frame will have their own entry and exit strategies. some strategies will work at short time frames, but they will be inefficient or even destructive, at longer time frames, and vice versa.
so u can see time frame affects every other aspect in trade planning!
this should be your first consideration when developing or adopting your trading strategy. your trading style should fit your personality, risk appetite or trading circumstance (eg. fulltime trader or trading in secret from the office) basically you have to be very comfortable with watever strategy you adopt and u must have faith in your strategy. otherwise, u might not weather through a losing streak with it. even the best trading strategies may have a losing streak.
there are books other extremely long articles on planning trades or developing systems and other similar things. this is just a brief overview. do take time to read more indepth about this in your own time because i believe your money deserves the best management within your best knowledge =) thus, i always aim to better my knowledge.
this is not an inducement to trade.
just my personal views,
trading carries risks, please be fully aware of them before taking a trade!
happy trading!
Ferrowolf
October 16th, 2008 at 9:49 am
Nice post for beginners.
October 16th, 2008 at 11:51 am
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