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Sunday
Mar232014

Sitting On your Hands is a valid position when trading. (SOH)

 

We spend a lot of time trying to figure out when to take a trade but sometimes it might be as important to spend some time looking for times when we should not trade.
 

Recently I was saying in the chat room that the strategy I was working on seemed to be doing really well except that at times it was getting chopped out.  And the way I have my risk/reward set up with my target and stops I was needing to win about 3 out of 4 trades in the chopping area to just in order to stay even.  

Part of my strategy is designed to go into a scalping mode while the market is moving sideways.  But that is also when I get into the most chop.

Another thing I noticed was that I was getting a lot of my chop-outs when there was not a lot of volume showing on, in this case, the one minute chart.  So I added a filter to help deal with that (See Volumize Your Trading!).  That did help a lot but I was still seeing some chop.  

Ok, I guess I'm getting off the point here (SOH) but I was trying to relate some of what I was thinking when I when I started thinking about SOH.

I don't remember for sure where I first heard the acronym SOH, it was probably in the late David Elliott's nightly seminars back when he had his chat room open in the Think-or-Swim chats.  I do remember him saying that not having a position or "Sitting on your Hands", (SOH) was a valid trading position.

Now it would be true that by adding a filter like I did with Volumes does infer that you are SOH while the stocks volume is trading below your threshold.  But the idea of SOH I am thinking about is specificly writing a rule for when we don't want to be trading.  So you are writing a rule to be true for times when trading is not optimal and then using that rule to control the logic of your strategy.  One of the ways I like to control the flow of logic is with the Flag node.  I set the Flag to True when the "Ok to trade" rule is True and flip the Flag back to False with rules that are True when trading is no longer optimal.  

The logic of the strategy I was working on is really combining two, more basic strategies and what I was needing to do was to turn off the channel scalping section while continuing to look for breakouts.  So I was looking to only turn trading off for part of my strategy only under certin conditions.  Those conditions were telling me to sit on my hands and wait for the trade to come back to me. 

 

Ok, I think that this is a good place to break the article and continue with some examples and more ideas for subscribers to follow here:

SOH page 2

 

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