Blog: Define your Tradeable Event
What could be a tradeable event? I do not want to be very technical so I will make an analogy with “animal battlegrounds” which by the way is the name of the documentary that inspired this post. So there was a hawk who wants to feed himself. Imagine that this is the trader who comes every day to feed himself in the market place as the hawk does in the wilderness. The trader and the hawk must be every day on the lookout. There are days when both the hawk and the trader fly in vain wasting energy/commissions, slippage without catching anything and days when they eat for the whole week in one day. So the day trader is like a predator. Going back to the hawk who eats pigeons, let see the similarities. In the documentary the hawk attacks the pigeon diving with speed reaching almost 300 km/h surprising the prey. But when the pigeon spot him he flies horizontally and at this kind of battle they both have the same speed around 100 km/h but the pigeon can last longer. This seems to me like a sideways trading. Not a tradeable event. Defining a Tradeable Event helps you to avoid overtrading.
Next time the hawk finds himself together with the pigeons in a stretched canyon. Now this looks like something else because when the hawk descends with velocity and the pigeons fly then the close distance between the walls of the canyon would give a big advantage to the hawk because this limits the movement of the pigeons who waste time if they want to fly up. OK, so this is a Tradeable Event: the hawk, the pigeons in the canyon. You can apply it to your trading plan like this: you are the hawk; the pigeon is the instrument you are trading. Wait for the pigeons to get into the canyon (trap). Your trading trap would be a double bottom, double top, breakout move, etc. in essence any kind of trading situation that has a clear view like something big had happened before. Wait for the pigeon to get into the canyon, only after that is when the hawk attacks. So we have our Tradeable Event let’s say the double top which is clear for everybody, there is no need to anticipate anything. What we need now is a setup. OK, this is a little complicated because this is different from trader to trader. Could be some indicators which you have experienced and shows you that the trap is setting up or could be some price levels which gives you the advantage of a clear entry and stop loss scale, in other words watch the pigeon and the walls also and decide the moment when the attack gives you the highest odds of grabbing the pigeon without giving him to much space to fly and without being too late/early and hit the wall or in your case being clipped out. You have the Tradeable Event, the Setup, wait for the Entry and Attack the pigeon, now it is time for the tape to work for you. You put your orders entries (the claws of the hawk) and stop (the wall) and let the action to give you a nice pray. After you got the pigeon set your exit points which means to limit your appetite ’cause you don’t want the hawk to turn into a pig and be slaughtered, be kind and let something for the scavengers.
So, in the trading battle you must know your pray, wait for it to enter into the trap but do not attack it yet, even if you catch a lion you don’t take him from the mouth when he is struggling. Let him bleed a little which is the setup for you to enter. When you start to walk on the path of a day trader you must be prepared for scratches. The key is to have faith and watch the battleground and not bleed to death until your scratches become your shield and you do not feel any pain anymore but you know the strength of your shield and the time you can stay in a battle without bleeding. I will speak to you what bleeding means in trading and how to overcome this situation.