The following therefore excludes systems that tend to have fixed targets, such as trading and exploiting levels of . Trend-followers usually do not have fixed targets as they do not know how far a trend would go before changing.
My job as a trend-following trader is to do the following:
- Estimate probability of direction of future price movement based on a sound system of analysis.
- Engage losses but make them controlled and reasonable within a sound methodology.
- Exploit probability of price movement in a favoured direction by trailing the trend.
- Have realistic expectations of gain in any single trade relative to the (or other suitably reliable measure of ).
For trading situations where the is high, stop-losses need to be acceptable and broad. Sometimes 2 x is used as a rule of thumb. However, human judgement has to prevail. On occasions some instruments have a pattern of spiking deeply down or up, and recovering. For those a stop-loss of 3 x may be better to avoid being stopped out. If 3 x or even 2 x is unacceptable as a loss I do not enter the trade. Too often new traders are spiked out and left behind.
varies by time frame and naturally so does visual appreciation of .
Make volatility your friend - and treat her with respect. Develop 'nerves of steel'.