Thursday, March 22, 2012

22nd March 2012 - premature close on EURUSD?

An inside bar formed on the EURUSD a few days ago. Rather than enter on the break of the IB's high, I set my entry on the high of the previous bar. My pending long was triggered before price retreated. However, the retreat halted short of my stop loss.

This morning I saw a bearish signal in silver. Shorting silver and going long on the EURUSD would've created a hedge, so I decided to close my EURUSD position. At the time of the close, price was about 65% towards my stop-loss.

Since then, the EURUSD has moved up a bit. Closing a trade before it hits its stop-loss might've been premature as the trade would still be alive if I had left alone. Meanwhile, my short on silver is still waiting to trigger.

The key question is:

If the market provides a new signal, do you close your current trade?

Suppose you see a continuation signal and enter a trade. The next day, the market then signals a reversal. Do you remain faithful to your trade and keep it open? Or do you close to accomodate the latest market conditions, and perhaps even trade it?

A tricky question.

Staying faithful vs respecting present market conditions

Staying faithful
Adjusting to the market
+ Market conditions always fluctuate, so no need to panic.

+ Stop-loss has already been defined and turning point against your trade identified.

+ Eliminates propensity to whimfully and emotionally modify orders. This improves discipline.

+ Less baby-sitting required.

+ Eliminates susceptibility to fake-outs.
+ Vis-a-vis, today's information is more relevant than yesterday's.

+ Can allow for further optimisation of profit-taking and reduction of losses.

+ Allows exploitation of new opportunities.

After some consideration, I believe I should remain faithful to my original orders. Modifying or closing live orders too often can harm discipline, especially if you're still a newbie like I am.

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