Q: If you do not intend to carry a position from one day to another day, do you close your futures trades with the CME pit close?  I gather that this would be 3 PM Eastern. 

A: No, Globex (electronic market) is open 23 hours per day and assuming you are using an electronic platform, you can easily carry positions for as long as you want, including after the CME close. We generally try to open and close each position every day starting with the CME close, but sometimes carry over to the next day or two. If you are trading the old-fashioned way and your broker goes home after the close, you need to re-consider which broker you want to use!

Q: I understand most of the concepts of the contingency rules.  A scenario that is not specifically covered by these contingency rules is that we already have an executed profit target (hooray!) and the price now returns to the same level as the entry.  I would like to understand your thought process on this – would you recommend entering the same trade again or does your experience say otherwise?

A: You are absolutely correct that if you were willing to enter at one price, you should be willing to enter it again at the same price—with a warning. We tend to enter at the CME close, which in practice means the Globex open since obviously you can’t enter at a price that is already gone. The CME close is not exactly random and in fact it’s the most important price on the bar, summing up the sentiment of the day. Still, it would be nice to know that a return to the previous close is just a profit-taking correction and not a reversal! We set the profit target at a big chunk of the average daily range, so a return to yesterday;s close, assuming that is our entry, is a big move against us. So, if you re-enter at the same price a second time, be sure you have checked the chart carefully. This one is a judgment call.

 Q: Back to the contingency rules: I want to make sure that I understand how to properly apply the following from Contingency Rule #3:  “We also re-enter after a stop at the previous day’s close if that is higher than the stop just hit.”  Can you give me an example of this, please? 

A: Let’s say you were long sterling at 1.4950 but hit the stop at 1.4875 for a loss of 75 points. Now the price has risen back to 1.4950, i.e., a 100% retracement of the loss just taken. If you were willing to buy at 1.4950 once, you should be willing to do it again especially now that the worst case event has already occurred, i.e, the 75- point loss. What are the odds of a second loss of exactly the same size happening again? Almost zero, although double bottoms do occur. So re-enter and restore the same stop and target.