Having recently started spread trading and after some reading I go on a bet and made a good return on it going up. I got out and knew it was going down so shorted it but I kept getting very nervy when there was any sign of it rebounding and would bail out only for it to go down again… Just wondering how people manage a turn around in the market. Do you go with the movement and stay in? Get out altogether? Or do anything else? What kind of profit % should a good strategy give on your capital?
It is hard to advise you without knowing what type of trading you are doing, i.e. technical, fundamental, news feeds etc. First mistake was saying you ‘knew’ the market was going down, nobody ever knows!! As regards staying in a spread trade or taking profits this should depend on large time frame trends. If you are long in the market and the monthly, weekly, daily trend is up then stay in using pivot points to trail your position. If you are counter trend trading then you have to be more aggressive in taking profits. The trick is to know what the trend is in what time frame you are trading, this will give you both entry and exit targets.
You should never be ‘nervy’ when you are in a trade, you have entries, targets and stops, it will either work out or it won’t! If you are not sure, as in your last trade, try this: when you are in the trade and you are in decent profit, take off half the position and put a stop at your entry price or just inside it to cover commissions, that way you lock in profits and you are still in the trade for free! Continue to trail it with the stop until you are taken out, if it keeps going in your direction then you can start making decent money!! As regards trading both ways, that isn’t easy, remember, just because you would not buy a market does not necessarily mean you should short it and vice versa!
What kind of profit % should a good strategy give on your capital?
Depends, 3% a month, 12% a week, 5% a day. It’s really bad to look in terms of percentage gain a month. Expectancy and draw down are more important figures to be looking at.