Hi allanl, I never said it was a 100% certainty that it will happen, but rather there's a chance that the formation will realise, and based on my trading system, this chance is high enough for me to hedge against and that is why I sold out at 0.055 this morning. However, this chance will be reduced to such an extent if the SP breaks through 0.058 that I will be willing to buy it back at that price. That is to say, the premium I am willing to pay for this hedge is 0.003. In the other case, if it drops back down to 0.053, then the chance that it will bounce back up is high enough that it also warrants a buy back. So the expected cost of my premium is really [Chance of break out to 0.058] * 0.003 + [Chance of double top realising and drop back to 0.053] * -0.002.
You have to understand that trading, as with everything else in life, comes down to a game of probability and risk. To be able to weigh up return against the risks you are prepared to take, and being able to hedge against any excessive risks that you are not willing to take, based on micro-, short-, medium- and long-term time periods, is the basis of what makes a successful trader.
I will definitely be on the look out for price action this afternoon to see if I shall buy back.
What do others think?
MHL Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Not Held
