Timing Your Trades

By: Bert Terhart

Timing is everything. You've heard it a million times. It's a worn-out, over-used cliche that happens to be true. No matter what you're up against, timing is everything. If you're a futures or stock trader, timing is the only thing between you and the poor house.

It's a statistical certainty that if you play a zero-sum game with unlimited downside risk long enough, you will lose everything you own. The number of traders that don't understand or ignore that fact astounds me. If the above is news to you, then wake up and smell the coffee my friend, because you might very well be a train wreck waiting to happen.

Timing is not just simply buying low and selling high. It's not just jumping on or off at the most opportune moment. The most important element of timing is to understand and cope with the duration of your trade.

That is, the time-frame in which your trade matures and develops.

System traders using technical or fundamental indicators analyze data looking for entry and exit signals. Once an entry signal has been acted upon and a trade entered, one generally waits for an exit signal. Only three things can happen to a trade at this point:

  • It flat-lines and price goes nowhere;
  • Price increases and we have a paper-profit; or
  • Price decreases and we have a paper-loss.

That's it! Only three! Now if any one of the above has occurred in a time frame that you can't explain, you're trading strategy is fundamentally flawed. And, more importantly, it's only pure dumb luck that's keeping you from going broke and then some. If this applies to you and your trade, get out now.

Not only must you understand when to get in and out, you must have a clear and profound understanding of how long it should take to meet your trading goals. The longer you are in a trade, the greater the risk you are exposed to even if price does nothing. Remember, if you stay in indefinitely, you will lose. It's not if, but when!

The next time you decide to jump into the market, know full well how long you plan to spend in that market. The planned duration of your trade is directly correlated with the risk you are assuming. Anything outside that time-frame means you must reassess your position and act decisively. As it turns out, my friend, timing is more than everything: It's the only thing!

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