I have a theory : I believe our human nature leads us to make the wrong trading decisions for all the trades that follow a first one initiating a position, on one side or the other. When our initial position shows a loss, we'd like to double it, average down ("When you're in trouble, double"), when it shows a gain, we'd like to cut it and take a small profit ("You can't go broke banking a profit"). It means, for those who try like me to profit from the markets by "cutting the losses short and letting the profits run", that we naturally tend to buy when we should sell and sell when we should buy. I've adapted my trading accordingly : but for the first trade where I take a position, everytime I really want to buy, I sell and in a similar way, a strong urge to sell triggers a purchase...


The direct consequence of this is that my positions often end up with a loss or a limited gain and a few big (and too rare) winners will offset them and make my year profitable. When I'm inspired (or lucky...) enough to have a long winning streak, it can lead to outstanding profits while a losing streak is quite common. As discussed
in a previous post, it's not the only way to be profitable trading (the trick is to have a positive expectancy) but it's just the most difficult... There would be no glory to get rich using the easy way, right ???


The short DJ Eurostoxx 50 (SX5E) position I started discussing in my previous post is a quite good example of this trading technique. The position was initiated on Jan 21st, after Obama announced his plan to curb propr trading and technically motivated by a break of the channel that held the index since the beginning of the March 09 rally. But I've told you about this already. What I haven't mentioned is how I applied to the trades that followed the principle I described above.


Read the full post here:
http://blog.thelordoftrading.com/2010/02/strong-urge-to-buy-sell.html