Sunday, April 03, 2005

The Defense questioned

Tack said...

I question why you continue to promote this extremely dangerous trading strategy in a public forum ?

I think and write about it because there is more than one truth. It took me 3 years to learn that and I have started to question all these trading truths being told from generation to generation.


I have a trading friend, who trades something like the Defense strategy for as long as I know him with acceptable risk parameters. I told him, one day, one day there will be the big one, the one which will wipe his account. But 'till today he has weathered the storms quite fine.


And don't tell me you don't run this risk of the big bad one trade. You do everything to avoid it, but it is waiting out there and it might hit you real bad, if you don't use proper risk management.


I accept that the Defense is dangerous.

But let me tell you about my biggest trading loss ever: 5 years ago, daytrading stocks then, I followed the so secure method of adding to a winner in a biotech comp, which had gotten slashed to 75% of it's value premarket due to a bad earnings release or some other news. I took the first chunk at 5, added at 6 and added the third chunk at 7, then the s*'t hit the fan and a fund decided to dump it. Back we went to 4 in one or 2 minutes.

Me, being this idiotic trader I was then, had not seen the sign on the wall, when 7 .20 proved to be the high and no new highs followed for 30 sec or so. I did not cover at a still nice profit, when it was possible around 6.30. No, I was sitting there, not believing it and finally covered somewhere around 3. Sure a Stop would have saved me, but me being Mr. Wise Guy did not protect my profitable position by trailing the Stop then, because I wanted it all.

They have a term for it to explain it: “Trader Paralysis”

But this sure did not help me afterwards. I
 can assure you, I would have fared a lot better had I not used the oh so wise strategy of adding to winners.


Stops are worth an article, so I will not tell this story here. But Stops have their dangers as well. Sure you are flat again, but are you emotionally made to continue trading as if nothing has happened? A daytrader has to be, and if he can’t accept that losses are part of the business, then it would be best, if he left this profession immediatly! This article I mentioned earlier: Death by a 1000 Stops hit the nail on the head for me.

And how many emails did I receive asking:

"Chris, are my Stops held on Globex or IB, I think they know where they are. They hit them, take me out and continue in my direction. Could you make the Stops invisible, held in FuturesTrader only?


You and I know, there is noone out there running these specific Stops intentionally. But that Stops are run, before a major move can start, is something you see happen quite often.


You question, why I write about the Defense Strategy and don't keep it to myself.

Simple: Because a lot of people use it, but don't tell anyone, that they do it, as it is so dangerous.


I write about it, because this Blog is not the general truth forum, but a private Blog, which I use to write about my Trading path and which covers the emotional and strategic side and development of me as a trader.


I have noone to follow, I have had my share from gurus and I have learned, that I need to find my path alone. I can bounce ideas around and writing about an idea is one way to bounce it around and I'm glad it sparked your comment, so I had a chance to reexamine my thoughts and ideas.


I have my reservations how Anti trades the Defense Strategy, which is the reason I trade it in a different way, but I look at it, as it is deviating from the Trading Truth told to the daytrading community.


95% of all daytraders fail. Are all these guys and gals dumb? I don’t think so.

Are they just not made to become traders, maybe. It takes a lot more dedication and conviction to become a trader, than I ever thought possible when I started this way. But some of the old sage trading truths, when applied at face value, will just not work and be one of the reasons why some prospective new traders fail.

Relaxed trading,



Btw: I hope you did not miss Anti’s comment on Friday, that the defense as he applied it, was against his own rules. It went beyond the 66 tick exceed a countertrend is allowed to run, before you have to consider a trend change. I still wrote about it, because it happened in realtime, and Anti had the guts to say, Yes I made a trading error and I paid for it.