Turning Day Trades Into Position Trades

A very important consideration in what you will learn in this course is the ability to turn a daytrade into a position trade. Perhaps position trading is not for you. However, it is difficult for many traders to resist the temptation to turn some winning daytrades into position trades.

However, this chapter is not for the beginning trader. Please use this with caution. If you're not careful, it could have disastrous results. Be especially cautious around times of earnings releases and economic data releases.

For years the only available way to trade from your home or office was to position trade. Even now, it seems to some that strictly daytrading leaves too much money on the table.

If we have a winning position in a particular contract, why shouldn't we hold onto it overnight? Isn't one of the oldest rules of trading to "hold on to your winners?" Over time we can develop an appreciation for which daytrades turn into the best position trades.

We can attempt to hold on to any daytrade entered as a result of one of our major entry signals. If we are in a daytrade when a major entry signal occurs, or enter one because of a major entry signal, we may attempt to hold that trade overnight. The major entry signals are the breakout of a 1-2-3 high or low, the breakout of a Ledge, the breakout of a Trading Range, or the breakout of a Ross Hook.

There is one intermediate term signal that can also cause us to try to hang on to a trade and convert it into a position trade. That signal is the breakout of the lowest low or the highest high of the last three days. For purposes of conversion, that intermediate signal carries the same weight as a major entry signal Once the trade is converted, we can maintain it as a position trade. As much as possible, we monitor and keep an eye on the trade intraday, but we do not trade in and out of it as we would on a daytrading basis. We try to stay in. Therefore, the only time we will try to hang on to a trade and convert it is if it meets one of the signals mentioned, and is also in a profitable position at the time we decide to hold.

Although it's not necessary, it is best if the trade is in an established trend. Prices trend upward on a daily or weekly basis because there is a real demand for the underlying. They trend downward on a daily or weekly basis because no one wants the underlying. Why should we have to fight our way in and out numerous times a day if a market is trending and the underlying fundamentals, whatever they are, cause prices to behave in a trending manner?

"Established" means that a trend has had a leg up (or down), a correction, and then has taken out a Ross hook.

It's it even better when we are in a profitable position with a stop that has not been violated by the correction as shown in the diagram below.

We like it best when we're nursing a profitable position on the first leg and are able to add to our position during the correction prior to the hook's being taken out.

RULE: A CORRECTION CAN LAST FOR A DURATION OF ONLY THREE PRICE BARS.

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