Emini trading is not unlike trading other markets since the same factors can be found across all financial markets no matter which one is chosen by the trader. It is estimated that fewer than twenty percent of people that trade the financial markets have or utilize a trading system to guide their trading, long term investors included. Of this twenty percent or less, most are using predefined indicators with very few understanding the concept behind their system. Most people try to find high-probability entry without any concept of position-sizing or and avenue of exiting the trade. This form of trading usually leads to a trading method that is negative in expectancy.
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However,if the trader understood the role that exists between position-sizing and exits in trading, they would be quite satisfied with a trading system that only produces winners less than half the time. We've all heard it said before but this does not make it no less true, " Let your profits run and cut your losses short. This is exactly what a trading system can do for futures traders that utilize them.
Following The Trend
Trend following indicators tell the trader when the market has changed direction from up to down or down to up and are represented through various chart patterns or mathematical representations. Once the trader enters the trend the trader lets the trade run to fruition until the trend begins to weaken. A classic example of letting profits run. If the market cooperates, the trend follower will enter the trade once the market fits his criteria and will stay in the trade as long as possible.
At some point the trend will end and as a result, cutting losses short should come into play as the trader senses and sees the market has turned against his position and immediately exits the position. However, if the position is currently ahead of this point, the trader exits with a profit. If the position in behind when the market turns, the trader still liquidates the trade and avoids a large loss. Either way the trader has protected himself from a loss and draw down in his trading account that will adversely affect his ability to continue trading.
The Advantage Of Following The Trend
The advantages of following the trend are simple in nature since you will never miss a major move within the market. If the futures market turns from down to up, the trend following indicators utilized should issue a buy signal to execute a long position. However, there is a question that must first be answered: When does the trader execute the order to buy? If it is a large upward move, the signal will be strong so entry should be executed immediately. A second benefit of the strong upward move is the longer the position can be held, the lower the transaction or commission cost will be since less trades need to be executed during the market session to reach profit goals.
Strategy should be considered here since the trader must understand if he can jump on board a major move that profits from one trade can be excellent. This point explains how having a system that is correct less than half the time can still be a winning system since losing trades are cut short and winning trades are allowed to run.
Disadvantages Associated With Following The Trend When Trading
One disadvantage of following the trend is the trader's indicators cannot determine the differences between a major move that offers a large winning trade and a short lived move that is unprofitable and holds the potential for loss. This very often causes a whipsawing effect as traders very often enter trades on the signal only to have the trade quickly turn against them causing small unprofitable trades. Small losses by successive whipsaws can quickly compound and cause the trader utilizing a trend following strategy to consider abandoning their trend following system.
Should Everyone Utilize A Following The Trend Methodology When Trading?
If following the trend fits your personality and meets the needs of the traders trading goals, then by all means they should utilize a trend following system. Following the trend is a time tested method that is used by investors and traders across all markets. As the markets become more and more volatile, there are always more new trends for the trader to use for profit. Traders will very often use a long term trend to enter positions on pullbacks and ride the next wave of the trend up during the market day.
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