Wave Chasing

Just a quick overview of WTF I’m talking about w/my trades. The numbers used are just examples (nice round numbers!) -the real ones are all spreadsheet driven…

Calculated Minimum Target: 2.5% – this is the calculated percentage return needed on a trade.
Target: 3% – Calculated minimum target rounded up to the next full percent – that is the target actually used in trading.

Stage 1 – The start – Set the upside target at 3% and a hard stop based on chart analysis. Sort of “set it and forget it” – everything is in place if I can’t be watching the charts all day. Also covers me if there is a pop/drop at the open.
Stage 2 – When a trade has gotten 2/3 of the way to the target – I increase the sell target by 1% to give it some room to move, and change the stop to a trailing one, say 4% to a breakeven trailing % – in this example, 2%*.  Since the trade is showing some strength, no need to let it go all the way back down to the original stop if something goes wrong.

Stage 3 – When a trade hits the 3% number, I remove the upside target altogether, and place a trailing stop equivalent to the difference in the rounded up target (3%) and the calculated minimum target (2.5%) and just let it ride – so, a .5% trailing stop. This way I am at least getting the minimum calculated target if the trade should just turn right around, but if it continues to go up, I’m not leaving money on the table, and still protecting myself when it pulls back.

So, that’s what I’m talking about when I have trades in stages 1, 2 or 3.

This post is solely for illustrative purposes as to what I am talking about in other posts. It is NOT trading advice in any way, shape or form and most definitely should NOT be construed as such.

*Sorry for the post-posting change, the system is still being tweaked.