Do You Want This Position

I want to go back to something Marty Schwartz said that actually occurred this past week for me.

It is something that I struggled with when I started trading, not so much now and when the opportunity to jump was there this week, I continued to exercise something that can keep you on the winning side of a career.

I exercised patience on a setup and in the end, didn’t take the trade.

One thing many traders forget is that a setup is not a trade. A setup is when variables come into play that give a potential trade. Setup = Potential Trade.

Marty says “before you put on a position,
ask yourself if you really want to have that position.”

Asking yourself that helps to show the difference between a good setup and the itch simply to trade.

Swing trade on the AUDUSD

The weekly chart will show a big picture down trend and a bounce off the lows of .8660. Since Feb 2014 though, price has been traveling sideways.

However you define a trend, I like to keep it objective and will generally use an indicator for that purpose. I will keep in mind the bigger picture when taking a trade although it rarely influences my trade unless I a trading the weekly trend.

The trend for me was up on the Daily chart and I will use that trend for a four hour chart setup.

There were two areas on the four hour chart that I was interested in an opportunity if price fell into those zones. The first area was 9015 and the second area was lower at 8940

On this chart, you can see an area that I have blocked off with two lines.

AUD/USD 4 Hour Chart

Price came into the 9015 area and I was looking for a trend resumption to the upside. My trigger was the breach of a higher high.

Price sat in the area for 40 hours in total. That said, 16 hours after I placed the order, I cancelled it.

I asked myself “do I really want to be in this position?”.

The answer was no and I cancelled the trade. The bull/bear battle was taking too long at this zone and I much prefer taking trades from zones where there is a big imbalance of bulls and bears.

That question allowed me to focus on something other than the trade execution and I could see unfavorable conditions. It was a good question because……

Price broke back down and landed in my second area of interest.

AUD/USD 4 Hour Chart

I dropped down to the 30 minute chart, saw an area that would indicate a resumption of the up move and placed my order. Two hours later, I was in the trade….a position I wanted.

Being selective and patient waiting for a prime setup conditions saved a losing trade and allowed for some decent profits on the triggered trade. I usually split swing positions into two parts.

In this case, the first was scaled out for 75 and the other half was trail stopped for 30.

AUD/USD 4 Hour Chart

Swing trading does not require monitoring every blip of a trade and at times, your exits are not as concise as you would like. As well, conditions in the AUDUSD are a little ugly and we need a resolution in direction.

Patience and asking yourself if the potential position you want is something you really want to be in. That can’t be overstated.

Trade well.

For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.