[Chart] Anatomy of a "protective" trade.

[BitcoinTraderFX]

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   EXAMPLE OF A "GUARDED" TRADE
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*I know that buying and (especially) selling is not popular on this board. But money is money. And we should be protective of our money. So I'm posting this despite the fact that it might not be popular. But it's important to understand that you DO NOT have to watch in horror (like a deer in headlights) if something doesn't go your way. Investors need not read any further. But if you are a regular trader, Job #1 is to protect your capital.

*This was originally meant for others to read, but I'm re-posting it here because it can benefit all active traders.

Given the warnings I issued, and mention of Guarded, Protective, Defensive, etc, here is what I mean.

I just took a quick trade off the 1 Hour Signal. It said go long. But, there were warnings of caution.

So I still took the trade. As I show in the graphic, I DAMN WELL EXPECT the market to do what I want, and I expect it RIGHT NOW. Okay, I'll give it a tiny wiggle room, but especially with warnings on, not a whole lot of wiggle room.

So I enter the trade on the 1 Hour Signal, I don't get what I expect, so *I'M OUT*. In this case I made a few bucks, but even if I lost a few, or broke even -- because I PROTECTED MY MONEY. In the end, that is MY JOB. I'm happy to get lucky, but I'll be protective until I get those rocket lucky moves that make a fortune. This could have been one, but it didn't.

Hope Mode = Evil. No go, then get out. Know where your limits are, know where the limits of the trade are.

[piramida]

ok now imagine you filled at 1195 and it went on crashing to $300 and stayed there. draw a graph explaining how you guarded your money then?

[BitchicksHusband]

My last trade:

1. I bought 1 BTC at $850.
2. I held.
3. Bitcoin went to $1163.
4. I held.
5. Bitcoin went down to $960.
6. I held.
7. It went up to $1153.
8. I held.
9. It went down to $848!    I was losing $2 for at least 5 seconds!  Oh my!
10. In spite of impending doom, I held anyway.
11. It's now back over $1000.
12. I'm holding.

[piramida]

My last trade:

1. I bought 1 BTC at $850.
2. I held.
3. Bitcoin went to $1163.
4. I held.
5. Bitcoin went down to $960.
6. I held.
7. It went up to $1153.
8. I held.
9. It went down to $848!    I was losing $2 for at least 5 seconds!  Oh my!
10. In spite of impending doom, I held anyway.
11. It's now back over $1000.
12. I'm holding.

nice TA on that one! thats what I call a protective trade allright

[oda.krell]

Never mind the smartasses. I appreciate posts like this (though I got this particular one by mail already)


(sidenote: what's the point of being on the speculation subforum if your entire idea of trading is buy & hold? guess you like the social aspect. so do I :D)

[gtabmx]

ok now imagine you filled at 1195 and it went on crashing to $300 and stayed there. draw a graph explaining how you guarded your money then?

+1 to this.

Anyone who thinks that an attempt to call the bottom is NOT putting their money at risk is delusional. Almost every trade that has a predetermine short term outlook, such as buying a dip and expecting a flying bounce or "miring" to get out, is putting money at risk for a short term reward.

You either invest for the long term, or you take on huge risk day trading to get many short term big rewards with big risks. There is no magic formula, no matter how many "after the fact" charts you post.

-Mike

[oda.krell]

ok now imagine you filled at 1195 and it went on crashing to $300 and stayed there. draw a graph explaining how you guarded your money then?

+1 to this.

Anyone who thinks that an attempt to call the bottom is NOT putting their money at risk is delusional. Almost every trade that has a predetermine short term outlook, such as buying a dip and expecting a flying bounce or "miring" to get out, is putting money at risk for a short term reward.

You either invest for the long term, or you take on huge risk day trading to get many short term big rewards with big risks. There is no magic formula, no matter how many "after the fact" charts you post.

-Mike

At least have the decency to respond what OP actually put forward: not some magic way to protect your investment against all possible outcomes, but a way to describe how you should trade, or more precisely: how your expectations of price movement should guide your trading actions, and how you should cut losses accordingly.

That's trading 101. But the rather asinine reactions posts like this get in here make me think it's a class many here still need to take.

Finally, what a moronic dichotomy you put forward there: you either HOLD FOREVER!, or you GAMBLE IT ALL AWAY.

In the real world, some of us are interested in increasing their total amount of coins through (relatively cautious) trading of the swings. What OP described is a basic technique to get there: cut losses. don't give up profits too early. That's about it.

[ashaw596]

OK, actually doing a protective trade is putting in stop loss orders ....

You buy at 1190 while almost simultaneously putting in a stop loss order to sell if price goes under 1180. If you missed the bottom, too bad, you lost 10 bucks. But you can't lose more than that.

Of course, this is still an annoying trade to try to get get right because you'll miss the bottom half the time and lose small ammounts of money often.

[piramida]

You buy at 1190 while almost simultaneously putting in a stop loss order to sell if price goes under 1180. If you missed the bottom, too bad, you lost 10 bucks. But you can't lose more than that.

That's more like it. But saying that you protected your money by manually selling when you "though it's not going up anymore" is a perfect recipe for a complete daytrading clusterfuck. There is only one way, and that is enter the market with an order, exit with either a profit taking order or a stop loss order, manually selling because your 1-minute ticks look wrong is just dumb.

I still want to hear what OP does when the market runs in an unanticipated direction

[gtabmx]

ok now imagine you filled at 1195 and it went on crashing to $300 and stayed there. draw a graph explaining how you guarded your money then?

+1 to this.

Anyone who thinks that an attempt to call the bottom is NOT putting their money at risk is delusional. Almost every trade that has a predetermine short term outlook, such as buying a dip and expecting a flying bounce or "miring" to get out, is putting money at risk for a short term reward.

You either invest for the long term, or you take on huge risk day trading to get many short term big rewards with big risks. There is no magic formula, no matter how many "after the fact" charts you post.

-Mike

At least have the decency to respond what OP actually put forward: not some magic way to protect your investment against all possible outcomes, but a way to describe how you should trade, or more precisely: how your expectations of price movement should guide your trading actions, and how you should cut losses accordingly.

That's trading 101. But the rather asinine reactions posts like this get in here make me think it's a class many here still need to take.

Finally, what a moronic dichotomy you put forward there: you either HOLD FOREVER!, or you GAMBLE IT ALL AWAY.

In the real world, some of us are interested in increasing their total amount of coins through (relatively cautious) trading of the swings. What OP described is a basic technique to get there: cut losses. don't give up profits too early. That's about it.

The OP did not explain how to protect your investment against all possible outcomes. Heck, he wasn't even talking about investments! He got in and out in under a day. That's not investing, its trading. Get it right. Second, it was not all possible outcomes, as piramida said, it could have tanked further and he would have caught a falling knife. The equivalent of sending your cash out as the front line foot soldiers. Not really protective. So what he did was plan to lock in gains if it goes up and levels out, or make a killing if it rocketed, or have no plan if it continued to tank.

You either set and objective and limits both ways and trade that, or you invest with a long term outlook based on fundamentals.

Plant the trade and trade the plan. But don't confuse trading with investing. And certainly don't confuse protection with locking in gains.

- Mike

[BitcoinTraderFX]

Sorry for not responding, been busy.

Okay, let's recap.

(1) The WHY of this trade, or WHY I decided to buy at 1200ish came from a trade signal. The system detected that the pullback to 1190 was a temporary retraction. So I wasn't guessing, I was trading on a signal. But this is besides the point of the post. The WHY was generated from an algorithm (outside the scope of this discussion.)

(2) The PROTECT part was that (a) I expected my trade to go my way, then it (b) did not. So the point of this post was to say that if a trade (speculative buying and selling as opposed to buying and holding), if a trade does not go your way, GET OUT.

(3) The added emphasis of this particular post is on "not going your way right away". Too many people hold on in "hope mode", hoping that it will "eventually" go your way. My point is don't hope, EXPECT. And when you don't get what you expect, GET OUT.

(4) I'm not claiming it was a great trade, or even a winning trade. It was a failed trade. Not all trades do work out. It's how the game works. So... this is how you PROTECT your money. For a trader, despite it made a "few bucks",  it would be considered a "scratch trade". A scratch trade is a losing trade I escaped from.

THE BOTTOM LINE IS:
For traders, defensive trading means protecting your money. You protect your money in every trade. If the trade doesn't work out, try to escape, if you can scratch the trade, do so. Otherwise, take a small loss and call it quits. But DO NOT let it grow into a BIG LOSS. That is a sin.

P.S. This was originally privately posted to traders BECAUSE there was a caution on last night. The caution was issued that bitcoin might actually fall heavily in price. So this example was showing how you can still trade, even under a caution. The point was that while trading under a caution, you can still do so, just more defensively.

My motto, and mantra still remains -- control your risk, and the good times will take care of themselves.

So have fun, and control your risk : )

cj

[BitchicksHusband]

Never mind the smartasses. I appreciate posts like this (though I got this particular one by mail already)


(sidenote: what's the point of being on the speculation subforum if your entire idea of trading is buy & hold? guess you like the social aspect. so do I )

Seeing when I can buy low and lower my dollar cost average?

[kireinaha]

If my strategy was to buy and hold forever, I'd just set up an auto pay to buy a little BTC once every week. Over time buying on the highs and lows would just about balance out, and it wouldn't make much difference since predicting a market down trend/up trend is statistically only slightly better than flipping a coin. Since the price is going to keep going up always, I'd just do it like that and mostly forget about it. Just sayin'.

[ashaw596]

Personally, I don't think its hard to predict the long term movement at least for the next while. I think it'll go up (eventually). Therefore my plan would be by a lot at the start and hold. I think it would be better than buying over time.

[MarCoin]

I agree with BitcoinTraderFX: a trade should go your way, otherwise you are wrong. The more time, the more randomness

[BitcoinTraderFX]

Now that I look at it, I should have emphasized stronger that the trade came from a one hour chart. When you look at that 1 minute chart, I look like a genius : )

But the signal was off a 1 hour chart. The zoom into 1 Minute was to show the anatomy (think autopsy of a failed trade).

But it's the same when you are watching a 1 hour chart. You expect that bar to climb, too much wiggle, too much hesitation is cause to become suspect.

Cheers, and control our risk!

: )

cj