[permanentjaun]

Lastly, I'll discuss limits. In my previous post I discussed how we should not cut our winners short. How would the system handle whipsaws or drastic movement against us to protect ourselves from profit loss?

One option I present is that the system is ALWAYS in the market. We want the chart that doesn't trade flat and is always going up or down. So if there is a cross to enter short we assume it will go down and when it crosses long we expect the market to continue going up. I assume this because why do we exit positions? We do so because we expect our profits to be maximized and further market movement is not strong. When we exit a long position its because we expect the market to reverse and head down. Would you not enter a short position if you trade a chart such that there is no sideways movement and only up or down? It doesn't make sense.

The system is based that we enter a long only in the belief that the market is going to go down.

So profits are protected by closing a position for only a few pips loss or even because of a whipsaw, and entering a new oppositie position. So if you entered long, protecting profits would involve a new position short. This allows us to maintain a position in the overall movement to make such losses insignificant.

What if the MA is too slow then? First off, we should be managing the system to eliminate this problem in the first place. Secondly, well I'm not so sure about secondly. I don't have a definitive answer to this problem. Certain ideas running through my head right now include exiting positions before the MA cross if price retraces 50% from the position entered in a certain amount of time. I'm taking suggestions on this part as well. Although, again, a lot of this problem can be minimized by finding the most efficient chart time and MA settings to make profits most efficient. It's sort of a 2 steps forward, one step back approach. We want to position ourselves to ride the 100 pip movement while taking small losses of 5-10 pips to guarantee ourselves a front row seat on the big ride.

Strategies could also include entering 2 lots. One that is exited with a profit of only a few pips to guarantee some pips. The other could be exited when the MA crosses or for an even close on the position. This would be difficult because of the typical problems associated with being "stopped out." Price can swing large enough to exit a trade, but not warrant the movement to reverse.

I'll conclude by summing up the problems of the system.

1. There is no clear profit protecting strategy. What happens when price reverses before the MA's can clearly tell us that? How do we protect ourselves?

2. Somewhat the same problem is telling the computer when to enter a trade. The computer would likely need a candle to complete and confirm the cross before entering the trade. Unfortunately what happens if we're looking at a 2 hour chart and the movement happens in that two hours then stops? We would have entered at the peak of the run and are vulnerable to a drop in price.

I believe the solutions are to finding the efficient chart intervals, and type of MA or MA's used. It needs US. We need to tell it what to do, not what it tells itself to do. Automated systems will need us.

Ok. Those are my thoughts. What do you all think? Thanks in advance. Matt