S3 Vacation Day - 8/21/07

Today was another vacation day for the market. The drift is generally higher, but there were no real dramatic moves.

I have been taking this time to reflect on strategy.

There are two interesting new technologies that I am experimenting with on IB. On is the charting software. It looks different from what I am used to. I am learning to use it. In particular, I am learning to think in the 15 min bars time frame. I am using it to better set my risk/reward parameters.

The 15 min colored bars allows me to measure the risk in price and time, and to try to capture moves defined in those bars. What I am trying to do is to capture 3 to 4 trending bars, and to guess how much each bar is worth. Its like Linda Bradford Raschke talked about learning to trade like sight-reading music.

I am also trying to apply her idea of trading constantly.

The second technology is the use of trailing stops. This is a way to automatically reduce your risk as the market moves in your favor. The beauty of this way of doing things, is that you reduce the chance of "letting a winner turn into a loser."

Well, actually, depending on how you use the trailing stop, it can turn into a loser, but as the market moves in your direction, the amount of risk that you can give back is lessened.

The other beauty of the trailing stop is that it allows you to take out some big winners. Rather than capping off your profits, you can let the market dictate how much you can make instead.

LESSON: Trailing stops are great in a trending and volatile market.

In a choppy, flattish market, trailing stops will simply not work, unless you really clamp down on the stoppage amount.

The S3 pattern is not breaking the highs and letting us blast off. Nevertheless, it is not breaking the lows either. The range is 1460 to 1434. We'll continue to chop around, but it looks like we are trying to post higher highs.