In our last chartbook we pointed out reasons for our very active participation in the precious metal sector at this time. We wanted to underline, that our approach has nothing to do with pyramiding. Avoiding any approach that increases risk is key. We only hip pocket the last 25% of a positions size of an individually successful trade onto a larger time frame longer term exposure holding. This method results in entries on smaller time frames that have tight stop entry zones and produce income on their own. Consequently it allows for a small portion from the winning trades to help grow a wealth preserving portfolio. Time exits-exposure is risk.
One important aspect to keep risk low is employing time exits. If expectations of a trade producing a favorable outcome of price movement within a relative short time span are not met, we deny the holding to grow into a higher risk position. We simply cut positions that are not behaving in the anticipated way. Tightening of a stop or partial profit taking are other mitigating ways to avoid a “sitting duck” not to become to easy a target for the market to deplete our cash stash. The more time money is exposed to the market, the more one has a chance to loose it. With longer exposure times also comes higher risk of compressed zones breaking violently. And that not only in the desired direction of the trade. In addition these funds are missing to be applied to more profitable opportunities elsewhere.
We applied the time exit strategy for risk mitigation recently on a smaller time frame silver reentry:
60 minute chart, silver/US Dollar 12/06/2019, “fading a range break”:
Silver in US Dollar, 60 minute chart as of December 6th 2019
The chart above shows our aggressive silver entry based on the action/reaction principle.
Time exits-exposure is risk, 60 minute chart, silver/US Dollar 12/07/2019, “absence of a bounce”:
Silver in US Dollar, 60 minute chart as of December 7th 2019
With prices sitting dormant for 14 hours in a tight sideways range, absent of the anticipated bounce, time exit rules came into play. We tightened the stop and lowered the first financing target. A countdown had started.
All our trade adjustments were posted in real time in our telegram channel.
Silver/US Dollar 12/07/2019, 60 minute chart, “close observation of price behavior near range borders”:
Silver in US Dollar, 60 minute chart as of December 7th 2019 b
With the help of a volume based market profile we planed to quickly take profits on the first attempt of prices to break out of the trading range. We assumed a reverse to the mean and wanted to conservatively reduce risk.
Silver/US Dollar 12/07/2019, 60 minute chart, “quick action”:
Silver in US Dollar, 60 minute chart as of December 7th 2019 c
The market acted as expected with a faded breakout. Consequently we took profits (+0.55%). The remainder position was stopped out shortly after at break even entry prices.
Time exits-exposure is risk:
We illustrated the time risk on a very small time frame here, but it is applicable to all time frames. It needs to be be used uniformly and especially on the higher time frames. Reducing overall exposure size is one more tool to avoid unwanted surprises.
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