WARNING: This might make you start to think!
Whenever I get a chance to talk to Finance students, current or future traders, I like to ask them one question. I propose that we investigate trading in a systematic approach. We have found an approach that generates two different trading signals. These signals are given at the exact same price. I will refer to them as Signal #1 and Signal #2. Sometimes, the signals confirm and sometimes the signals diverge.
Let’s suppose that when these two signals give us completely opposite trading signals (a divergence) you trade Signal #1, and I will trade Signal #2. That means that one of us is going to be Long and the other is going to be Short from the exact same price. Do you think it is possible that we both, over time, could come out with a profit?
The answer is almost always NO WAY. Absolutely not. However, what they have not considered is that in terms of just being profitable, not the degree of profitability, the Exit, particularly when you are wrong, may be the key to each of our successes.
To be continued…