Kane Trading - Education for Serious Traders

					January 8, 2004 Commentary- Today I'm going to do as promised in yesterday's column, and do a follow up on the management of the NQ trade. I am going to show where I scaled out of the trade, using my combination trailing stops and scaled exits techniques. This will not be a complete treatise on the entire process of scaled exits and trailed stops, of course, but a simple example of how I managed this particular trade. I'll move to a 3-minute chart of the NQ to detail the management. I'll draw two lines on the chart to highlight the potential trade area from yesterday's trade. Although the area looks wide on this close up chart, it's actually only a point and a half wide. The first arrow shows the area where I first started to scale out of 1/5 of my position. I used one of my basic trailing stop techniques from the book. I'm now waiting to see if I get another thrust out of the NQ so that I can implement another scale out. Let's move ahead on the chart. The NQ thrusted up hard from the area of my first scale out, and triggered another trailed stop exit at the area of the second arrow. I take off another 1/5 of the trade. I wait, again, hoping to repeat the process, over and over, until I run out of 'ammo'. Let's move ahead once more. I get another thrust and my trailing stop gets hit again. Off comes another 1/5 of the trade. This is working out extremely well at this point. It doesn't matter to me if it drops like rock from here, or continues to behave as we've seen so far. I just stick with my management plan either way. Let's move forward and see what happens next. After some sideways action, the NQ does another thrust up. I get another trailing stop trigger, and another 1/5 gets taken off. Again, I wait and see what happens from here. Regardless of how it goes, I know what I am going to do before it happens. I have a plan for anything that the NQ can do. Let's move ahead once more and see what happens. The NQ continued to drop, and I was triggered on my 'maximum pullback' stop. The rest of the trade was closed at the fifth arrow. The trade would have been closed in its entirety at this point regardless of how much I was still holding. This entire procedure, with multiple variations and options, along with my entire thinking process, is clearly laid out in Kane Trading on: Trailing Stops. I have traded like this in front of more than a few people, and many find it interesting but they still don't do it themselves. They like to just pick one place and close it out. Or perhaps take half off at one point, and then the other half at a latter point. If that works for them, I say that's great. I was not able to reach a trading level satisfactory to me until I perfected my scaled exit trailing stop methods. I have commented many times, mostly here and to other trading colleagues, that if I couldn't trade like this, I simply would give up trading. I would feel so handicapped if I were forced to close in one or two pieces that I don't think I could do it. That's how important I feel these techniques are. Now, to wrap this up, do I care that the NQ finished higher than all the locations that I scaled out at? Not at all. My play wasn't to hold until the close. It was a play based on technical aspects of the chart. In that regard, I did an excellent job at following my 'Trading Plan'. The plan did exactly what I wanted it to do. If I felt that another way to play this, over many trades and over time, would give me better results, I'd change the plan. I feel this plan is the best plan for me at this time. Some people like to hold and let all the shares/contracts ride. If that works for you, stick with it. That technique didn't work for me, so I came up with something better for me. I have shown how that plays out in one case here. I suggest that you experiment with this (after reading the book, of course, or you won't have the benefit of all that I have learned the hard way) and see if it improves your trading. It sure has made a difference in my trading. The next commentary will be the weekend edition, which I will post by Sunday.


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