Friday, July 17, 2009

My Most Painful Winning Trade.

We all know how easy it can be to experience the deer-in-the-headlight syndrome. You know the one... where you don't have a stop on the books (for any number of reasons) and price moves violently against you?? Our instincts tell us to freeze, much like the infamous deer or the little bug that plays dead when you move it around, only to get up and run when you've turned your back (lol...if anyone else has actually tried that!)

That built in mechanism for survival served/serves us well in many situations in life, but can be incredibly harmful to our accounts (both the financial AND the all-important confidence account) in trading.

But what happens when we experience the same reaction whilst a trade is moving aggressively in our favour??, This is what I had to deal with today. I wasn't prepared.

Usually, I'll watch the bid and ask for a sign of a slow down in the momentum (as I don't use tick charts) and exit that way. This has worked very well for me as I often find myself exiting very near the end of the move. Today, I haven't been trading with a relaxed state-of-mind and this cost me 60% of potential profits (I did open up a sell limit at .945- pretty much the high of the 08:00ET 1min candle- but failed to pull the trigger)

I left myself open to the very real possibility of breaking even on the trade as it dropped back to my entry before I eventually covered at .675.

As always, if I don't properly execute the first trade within a sequence of trades, I walk away as I know I won't objectively manage the subsequent trades.

Two consecutive mistakes tells me to call it a week.

(Note to self: Brush up on those trailing stop/limit orders! It'll help avoid situations like this.)


Jules said...

Yes, been there enough times myself, MM. I've really gotta brush up on those limit orders! Maybe sitting still, giving time for price to get to support/resistance is the way to go...well, on occasions like this it certainly makes a lot of sense...then I think, what about those times where price just couldn't get to where I projected it to go and I exited based on what my tape was telling me, and I took a decent profit instead of getting stopped out? Can't have my cake and eat it too. :-)

Anonymous said...

I hate to be all boring and analytical about it (I am hiding behind the sofa as I write this) but I learnt this lesson by recording the p/l at the order and the one when I intervened manually. I learnt, *for me*, it is very expensive to start pressing buttons :-)