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and the market after a brief rally decides to retest down to the 63 percent retirement level? Do we remain long? If so, what about cutting our losses short? What happens if the market retraces 100 percent of its up move? Do we jump in while listening to another general rule that possible double bottoms are good places to go long? |
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The point I am attempting to make is that there are a lot of general rules, all perfectly valid, about the market at specific times. You must have the discipline to obey your rules every single time without fail. |
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You must decide what your rules will be. |
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Using another example, let us say that you decide that you will buy a double bottom. You decide to do so after examining hundreds of charts and literally reviewing hundreds of examples of where the strategy worked. So you patiently wait for the market to fall to a lower level than its previous bottom. Then you watch how the market rallies up before faltering, and subsequently starts dropping toward the previous low. Now, for example's sake, you have decided that you will go long when the price is within 1 percent of the previous low price, and your stop will be 2 percent below the previous low price. Well lo and behold your order gets filled, and sure enough the market bounces up. How do you think you are feeling? Are you feeling good because you are in profit or are you feeling good because you obeyed your discipline? After the initial bounce the market falters, and then drops below the previous low, enough so that you get stopped out. Now how are you feeling? Are you upset that you got stopped out? Are you happy that you got stopped out? Are you happy because you followed your discipline? |
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Now let us say the market continues to plummet. Are you happy that you got stopped out, thereby avoiding a much larger loss? Are you now happy that you followed your discipline? Or are you mad that you didn't reverse and go short, recouping your long loss and possibly making a small fortune? Are you upset that you went long because obviously (now) it wasn't a valid double bottom? For the sake of argument, let us say that the market, after stopping you out, proceeds lower. Since this new low starts the possibility of a new double bottom, you decide to wait for a small rally, the failure of that rally, and a retest of the lowsso you can get long. Unfortunately for you, when the price rallies it does so sharply, falters just a little, never even comes close to making a double bottom (to fill your standing order), and then proceeds to make life of contract highs! Because you had been stopped out previously, and you didn't go long (since the market didn't make a double |
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