Trade management around a core position

Taking profit on the drop

Selling the ramp

File this one under trade management.

Last Sunday night futures opened after the DOHA meeting of Oil Producing nations. The failure to produce an agreement on the cessation of production led to a sharp initial sell-off in Crude. Given the current correlation between crude and the indices, indices reacted as well. I had several core short positions in the indices. I used the volatility to book most of the positions.

Later in the day on Monday, after a huge snapback rally in the Crude, longs in the indices struggled to make much past the 10:30EST highs. It was time to reapply the shorts and begin again.

This is the bob and weave of trade management. There isn’t a need to be so committed to a position or direction at all times. When profits present themselves, if you have a sizable position, take some or most of them off. You’ll raise your costs basis on the remaining contracts far above where the market is trading.

For example. Imagine you bought 2 e-mini S&P contracts at 2081. The market goes to 2089 and you book 1 of the contracts. This means that your new virtual cost basis (break even point) is not 2081, but 2073. From here you can either set a flat stop at 81, which ensures booking 8pts, or you can set stops at 73, ensuring that you break even on the trade. Then, imagine that the market trades back to 81 and you buy another contract, which you get the chance to sell at 83. You’re remaining contract cost basis is 2071.

You can do this over and over to work into a very large pull. Why fret over ticks when you can take home points (futures reference)

If the bob and weave is giving you headaches, give us a call, we can show you the ropes.

Filed Under: Trade Management

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