Last bite

One thing that has caught me out several times which I have finally noticed is the switch in market direction that tends to happen in the last minute or two before the off, when trading on a horse race.

There could be an easy to follow trend from over 10 minutes out, but in those last couple of minutes it nearly always swings the other direction. Now I've noticed this, I can use it. Too many times, I've built up several good trades throughout a race and then been stung right at the end. I now trade up to the last couple of minutes and then when (if) the market swings the other way, I am ready to ride the wave. Anyone else noticed this, or am I giving too much weight to the last few races I traded? Anyway, this technique has helped me avoid getting bitten during the last few trades.

Market states

An interesting part of the "Way of the turtle" book was about market states. One of the guiding turtle principles was to not try to predict which direction the market would move but instead to determine what market state it was in.

The 4 market states are:

1. Stable and quiet


2. Stable and volatile


3. Trending and quiet


4. Trending and volatile

Obviously, for trend based trading, state 3 is ideal. The market state changes over time, so it needs to be regularly checked.

The level of volatility could be used to decide where to set a stop loss, e.g. if the market state is 4, then having a one tick stop loss would drop you out the trade early.