Tuesday, May 12, 2009

IDFC Falls down, then what ?

online day trading
In the previous post, I had given the IDFC end of day chart highlighting two inside days. The suggestion was that IDFC is a sell.

Today, IDFC obliged, opening at 87 then falling all the way to 81. So far so good. Then at 2:00 PM, a rally started that took IDFC back to 87 in just one hour. What then was the final result of the trade ?

The answer lies in your exit strategy for futures trading.

First, you need to decide on the strategy before taking the trade.

Now come the possible exits:

1. If this is a multi day trade, then your stop is probably set above 92.60. You may gain from a sustained down move, or you could be stopped out. You are willing to be stopped out in exchange for larger profits which will come if a down move begins.

2. If this is a swing trade where you are willing to carry the position if it closes in your favor, then you probbaly closed the trade when it touched your enty price late afternoon. It was a scratch trade.

3. If this is a day trade, then you probbaly made lot of money since most exit strategies will put in a trailing stop that will allow you a profitable exit.

Now there are other exits possible. My point is; the profits come not because you rightly made a day trade in IDFC but because you are consistent in following rules. Maybe you planned a swing trade and got out at breakeven today. So what ? You next trade could give you a sustained trending move, allow you to exit next day at the best prices.

To sum up: You decide on the exit. But you cannot predict the outcome. You mae money when you follow your rules consistently since many times the outcome will be favorable. Allow probability to work in your favor. Never go through a process of decision regret - If only I had done a day trade today ... or If onl I had carried the position, or.. similar. How do you know of the outcome in advance ?

1 comment:

Manish Chauhan said...

Thanks Sir

You have given a very strong message in your post that your strategy is of less importance in front of discipline . I made money in last 2 of my trades and following the same rule , I took a short position today and got stopped out at a small loss But my mental state was same in profit and loss scenario .

Now today i am not taking any more trade as historically this decision is best for me :)