Shorten your exposure time to risk with Market Timing

One of the most difficult tasks traders have is determining the correct amount of risk exposure when entering a trade. Since every trade must be accompanied by a protective stop-loss order, the question always comes down to “how much space should I allow the market to move against me before I get stopped?”

Some traders rely on previous support and resistance levels as a place to put their stops. However, these areas are often shot at because the floor traders know that there are many orders waiting there to be filled.

Some traders will draw lines below or above sloping trends and use them as a stop-loss reference, often hoping the market will continue that pattern. But then, how many times do we see that pattern being violated just when we discover it’s there?

Others will use some percentage value, either based on some fixed profit expectation or a percentage of available funds, to determine your initial stop loss.

There are many different approaches to choosing a stop loss. My personal preference and what I think is the best approach most of the time is to use the expected and confirmed swing price.

What do I mean by “expected and confirmed” swing price?

As of 2019, I have been focusing on the science and mathematics of market behavior for 30 years. More specifically, forecasting market changes (also known as gyrations) in advance. This approach requires a solid understanding of various forecasting methods, including popular and well-exposed techniques involving Fibonacci and Gann ratios, to name just two. There are many more!

By learning and applying various market timing techniques that are designed to expose the underlying cyclical behavior of the markets, the trader can use this information to “de-risk” any given trade.

Is that how it works.

Suppose that by using some proven method of determining high probability market turns, you come to the expectation that a bottom is very likely to occur in the next day or two (at the latest). His method is usually 80% or better accurate, so you don’t have to worry about whether you’ll be on time (for example, tomorrow) or a day late (the next day).

The reason for this is that since you already know with a high degree of certainty the probability of a bottom turn, you simply place your buy stop order for the entry to go long just above the high price of the trade. day you expect the swing to occur. If the order is triggered, you immediately place your stop-loss just below the low of that same bar because it has just been ‘confirmed’ as a swing low. Your initial risk exposure is the range of that lower swing price bar. The probability of it holding and not being wiped out with a loss is very low because you knew with a high probability that the bottom was going to happen that day to begin with.

Now assume that the lowest point is going to be one measure late as indicated above. In that case, your buy stop was not triggered and you can do the same routine the next day for the one day lagging bar. The same rules apply.

The real trick, once you’re in your trade, will be managing the trade and adjusting your stop loss as your position gets deeper and deeper into profit territory. That’s a whole different topic for a whole different article. But for the topic at hand, finding the right time and price to place your initial stop-loss order where it’s not too small or too big is not only equally important, but it can save you a lot of money, keep you on more trades, and keep you away from the exchanges that you will later be happy about.

So, to get these advantages, learn how to forecast market turns to begin with, or find a trusted source for this information.