Markets are always evolving and trader must adjust to changes. This is could be a little misleading to many people. After all, one of the established market “wisdoms” is a saying “plan your trade and trade your plan”. We can see it  on numerous website and in many trading books. So what is it, stick to a plan or adjust to changing market conditions? Frankly, it is a little bit of both, as most trading related subjects are not white and black, but are full of shades of grey.

This is no exception and I would split it in two separate issues, both having to do with application of this mantra to styles of trading. When it comes to buying and selling using mechanical trading systems, saying is certainly true. Integrity of systematic trading depends on sticking to the script religiously. If the rules are being changed all the time, there is no system. That said, even these type of strategies should be revied every now and then. Depending on frequency of activities, productivity of a system should reviewed every say 50 or 100 trades, or, perhaps once in 3 month or maybe 6 months. Day to day trading, however, should largely be left intact. System must be given enough time to either prove or disprove itself. Neither will happen in 2-5 trades.

And then we have discretionary trading. This is what I feature here.  Discretionary doesn’t mean guess work or trading on the whim. Rather it is a combination of replicable methodology with experience. It is a broad subject and next to impossible  to explain in a matter which would satisfy everybody. One could easily write a book and not be done. I touched on it in many posts before. At any rate, discretionary trading is not as rigid as mechanical systems are, lending itself to adjustments and changes. As a matter of fact, they are needed in order to keep up with evolving markets.

For example, yesterday I discussed a Kiwi-Yen trade.  This was my plan at the time:
“My plan is to wait for next low to form on 1H chart, at which point I’d like to place an order just under it, with an objective of 60.90. Also, if the price rebounds sharply, another sell order is currently placed  at 62.80. This entry would have very small risk above previous high. Right now the problem is that the low is not yet formed. Depending where( and if) this happens, that entry might be adjusted lower, by 30 pips or so”.
In reality, some changes were made and that’s how they worked out.

Price found support at around 61.70 and bounced. I placed a sell order just under that low. On the run up action stalled at the 100 SMA, corresponding with 50% Fib number. I sold at the market with an objective of 50 pips. This was reached before London opened and this created a dilemma for me. Very often if things get lively within this hour, we will see trend reversal once Big Ben strikes. I cancelled my standing sell order. Once that hourly candle closed, intention was to sell if price moved under it. So far it has not happened. Second trade was taken few hours ago. Target is 61.60. Currently this trade is at about break even and chances are good that not much will happen for the rest of the day. I might close this trade if price still has no direction before Europe opens.

So, my trades changed in accordance with market. Basic premise remained the same- short trades in NZD-JPY only. I could have left it alone, not do anything. After all market behavior was not quite as expected, but I chose to be more active and respond to what market was doing.  Would have been preferable if the market did what I wanted. Yeah, good luck. Anyways,this could only happen because of my discretionary approach.

Another order is added. This time in CAD-JPY. I’m looking to sell it using 4H charts. Promising reversal pattern is forming on this time frame and I’m willing to give it a shot. Order is placed at 86.15. Current objective is 200 pips, but it could change.  Incidentally, EUR-CAD pair made new low, so the buy order there was moved to 1.5410, but I also just bought it at 1.5285, looking for about 100 pips. This is a smaller position and will be covered in more details tomorrow.

Mike K.