Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades

THE DRAG SYSTEM (TRADE MANAGEMENT/PROFIT EXIT)

The integration of certain key concepts—seasonality of the market cycles; matching strategies; and careful, calculated entries—enables high-probability trade success, requiring only brief periods when a stop-loss is in play. These strategy trade set-ups are designed to perform upon entry. When the price rises and closes above the 21-bar EMA on the daily chart or above key resistance, a profit exit strategy is then engaged to manage the profit (see Figure 10.3). This is the time when the “fish is on” and the “drag” needs to be properly set to successfully retrieve the reward. Generally, the Drag System calls for a preset adjustment, but it is subject to refinement during the trade as circumstances warrant.

FIGURE 10.3 30-minute Drag System.

ATPG, 30-minute, indicator set #18. Profit exit rules:   • Bearish MACD crossover (A).   • Price close below the 8-bar EMA (B).   • Exit on the next bar (C). The Strike Indicator entry was at 9.78. Prices rose above resistance, prompting the initiation of the 30-minute Drag System exit strategy. By following this objective exit method, I was able to stay in the trade as long as possible, exiting at 10.91, for an 11.5 percent gain on a three-day swing trade.

I have named this profit exit management strategy the Drag System after the drag system on a fly reel, one of the most vital parts of the assembly. ...