When You’re In A Trade, This Is Your Job
Stock index futures opened Wednesday’s session
with small upside gaps after February Durable Orders came in
higher-than-expected. The ES had trouble finding its footing as it made wide
moves in a range defined by Daily Pivot and overnight resistance at 1094-95 and
Tuesday’s low and intraday triangle support at 1090. Good broker selling
finally cracked the range before an almost perfect AB=CD pattern on the 13-min
chart kicked in to post a V-bottom.Â
After 3
down days, and the end of the quarter “smoke and mirrors†starting, I’ll be
looking for a positive bias and a test back up into the 1103-1106 area, which is
marked by the 100-day MA, Monday’s gap, and the 10-day MA.
Are You a
Perfectionist?
Trading isn’t about perfection. Trading is about making due
with existing conditions and doing the best you can with what you have in your
toolbox. It’s kind of like one of those TV shows where you have to accomplish a
set of tasks with limited resources. You have to get from point A to point B.
You have to make the most out of every situation and every resource.
Every situation you are in is not a winner. By cutting your
losses short and preserving your time, you are able to get more of the tasks
done quicker. The same goes with trading. I think someone once said (if not,
then they should have) that “Perfection is the enemy of the good.” Perfection is
an unattainable ideal that warps, corrupts, turns good into bad, and turns
profits into losses. Perfection means missing a fill by one tick because that
one tick is more important than making money. Perfection means not taking a
profit and then watching that profit turn into a loss because perfection is more
important than making money. Perfection means passing up profitable trades
because they weren’t perfect enough, even though those setups could have made
money. Perfection means hoping a loss comes back to let you out even, because
taking a loss would blemish your perfect win %. To put it bluntly, perfection is
for losers.Â
So if perfection is the wrong mindset for trading, what is a
better mindset?
Maximizing the situation.
If you are in a trade, your job is to maximize the situation.
It doesn’t matter that you had an open profit of 2 points, and now you only have
an open profit of 1/2 point. All that matters is that you now have a 1/2 point
open profit and your job is to make the most of the current situation. If
maximizing means pulling the trigger and taking 0.50, then this is the right
decision. If maximizing means waiting it out because of what you see, then that
is the right decision. Whatever the case, paralysis is out of the question.Â
Since there is only the open trade, the past is the past, and the present is all
about maximizing what IS. When you are maximizing, the past has no power to
paralyze your current action. The market doesn’t owe you 2 points, and you are
not foolish for taking less than 2 points.
You make the most out of what is before you, and by taking
imperfect profits and imperfect losses, you end up a net winner.Â
You make the most out of what is before
you, and by taking imperfect profits and imperfect losses, you end up a net
winner.
(I repeated that for a reason)
Trading is a messy profession, and those
who aren’t willing to get their hands dirty need not apply. Imagine that you
are a salesman doing cold calls. Now imagine that instead of the worst thing
that could happen being rejection, you actually had a chance to lose money if
you said the wrong things on the phone. That’s the kind of pressure we deal with
every single day. Each new trade could turn into a loser at any point. We never
know which trade will work out and which trade will go bust until we take that
leap of faith and put the trade on.
At this point it all comes down to trade
management. Many will say that if you get in the trade, and the reason that you
got in changes, then get out. I don’t necessarily agree with that. When the
trade is open, the reason for the set-up becomes moot. The thing that should
capture our attention should be how the position is acting. Each of us should
have a risk/reward profile for each of our trade set-ups. We know how far
against us the position can typically go, while still working out as a profit.
This amount should be smaller than our designated initial stop.
We also know how far in our favor the position
will typically go for a typical profitable exit. This amount can be used to take
partial profits. The concept of maximizing profits is all about
self-preservation, in terms of both money AND mental health. I have to admit
that some of my most psychologically devastating losses have started out as
profits.
Whether it was greed, or fear, or pride, or some
combination of the three, the result was the same: being stuck and unable to act
because I was unwilling to let the memory of that open profit go, and didn’t
take the profit that I had before my eyes. I’m sure I’m not the only one who
has experienced this losing mindset at one time or another. In fact, I’d wager
that just about anyone who tries this can relate to it, and those who say they
haven’t are lying!
Please feel free to email me with any questions
you might have, and have a great trading day tomorrow!