Be consistent

In my last entry I stated that I could not do anything but be longer term short, although I may need to explain that a bit. Given that I use a model type approach to trade, and that a model is after all only a representation of reality (and an imperfect one at the best of times) I am due to follow certain rules.

The most important one, and the one I adhere to ALL THE TIME is to take every signal that the system gives me, irrespective of what my long term view may be. Not doing that would negate the whole point of model trading, because you just do not know when and where your next profit/trend/reversal is going to come from. To inject your feeling/view on the model is madness. After you've tested it, made it as robust as possible, put in place a methodology for monitoring the P/L series (control charts anyone?) then just let it go.

Today's action is an example, I'm short from Dax U9 at 4835, when the model gave me a sell that should last until tomorrow's late morning. When the signal came in the market had just rallied through resistance, and kept going up higher than I was expecting it to. Coupled with other asset markets acting positively for stocks, I was not feeling well disposed towards going short. But, as the signal popped up (as I knew it would) I did what I always do, which is to say I followed the model's output. No ifs, no buts (well, they do exist, but are correlated to volatility spikes, a subject for another time).