Inside out versus Outside in Trades

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There are some traders who only trade Outside In and others who only trade Inside Out.

Firstly, for those not familiar with my terms, let me give a high level definition.

Outside in trades are those where the trader is trying to catch the turning points in the market, the troughs and the peaks.These trades are lower win rate trades as you are anticipating a change. However, the profit per winning trade is relatively high.

Inside out trades are trades where the trader is joining a move that is under way. They are inside out because by the time the trader realises the move is under way, you are already inside the move. These trades are higher win rate trades but less profitable per trade as you have missed part of the move.

Specialising in one or the other can be both good and bad. Good because you get really good at something when you do it over and over again, and bad because you miss a lot of great trades.

Many years ago, I went through a phase when I used to have a hard time with long positions. I was always looking for a short, even in an an uptrend. I guess it was my Pavlovian response to the instant gratification of a short win against the slower gains from a long. I overcame this disability by forcing myself to only trade from the long side for a while.

As a professional trader, I realised I needed a full tool box to deal with whatever the market threw at me. I saw that unless I could trade every which way and loose, I would not recognise what was going on and be able to deal with it.

In teaching Kiki to trade, I took a holistic approach. We found, firstly, one setup that she could trade both from the long and the short side and she became CP with that. We then added a second setup and did the same. The first one was an inside out, the second an Outside in. We then added to this basis.

I'm confident that she is now a trader.

Without taking anything away from Kiki and the enormous amount of time and work she put into it, I am convinced that the way that we went about the process of learning had a lot to do with her emergence as a trader. This is what we will replicate in the training.

Today's trades in RTH were around the gap trade. Trade #1 was inside out, trade #2 outside in. I have increased size and am trading less. That's all for today, I'm watching the Wimbledon tennis. Federer currently down 2 sets and losing the 3rd, but the fat lady hasn't sung yet.