In my last post on US Oil, I mentioned that I was waiting for confirmation of a bull trend continuation above the 2018 resistance level.
By applying some patience, price moved a further 4% in the bullish direction which triggered my pending order.
My risk is just under 2%. If it moves in my favor, I will buy more or compound. It it reverses, the loss is very manageable.
My stop loss is based on a formula that incorporates ATR and a multiplier. This then creates a stop loss that is wide and unique to the volatility of the asset.
The mistake that people often make is to use tight stop losses which leaves them open to tree-shaking or stop-hunting. This causes losses to rack up and potions rarely gain traction. It will always end up being a losing and deflating battle.
A smarter approach is to use a wide stop loss. My logic is simple. I always expect the price to go against me first when triggered into a position before returning a profit. Wide stop losses give price the time and space to do that.
A wide stop loss also gives me the ability to tighten my stop loss and reduce my risk if I need to.
If a wide stop loss is this, the chances are the trend has reversed as opposed to it being just a pullback.
Remember, a trend is a function of time. If you eliminate time, you eliminate the trend. If you eliminate the trend, you eliminate profit. Patience is underappreciated by most but an essential and handsomely rewarded skill in investing.
In this post, I explain the checklist system that I use to enter ALL assets. US Oil meets my criteria.
However, with stocks, I look for assets that are printing new ATHs.
With commodities and currencies, this is not the case. Instead, I look to pick off trends in between key areas of support and resistance as it is uncommon to see assets in these 2 classes creating new ATHs. Oil is a good example.
Looking at the monthly timeframe below, there is ample space for the trend to develop towards the next key resistance levels of the 100 round number and the resistance cluster levels between 2011 and 2013.
If these levels are cleared, price will push towards the ATH of 2008. If price clears the 2008 high, then happy days. Price will skyrocket to new highs, targeting the $200 round number and beyond.
I will simply let price dictate how far it wants to go and compound accordingly following price with a TSL.
It is the simplicity of good investing that catches most people out.
Zaheer Anwari – Co-founder of Sublime Trading