by Mark Likos
Getting back into the Game after Striking Out with a Loss …
Striking out with a loss is never fun but striking out on your first trade of the day has always been worse for me. Many traders have a hard time getting back into their game after an initial loss. They let their emotions take over and are hesitant or worse yet ‘can’t’ pull the trigger on their next trade. They end the session in the red on a day they should have seen profits.
To help avoid this, focus on only the strongest trade opportunities to start your day. Not all trades are equal; those with strong directional bias as evidenced by the current trend with solid momentum in the direction of your proposed trade will have the high-degree of probable success. Avoid taking setups that trigger against the current directional bias. One way to evaluate this is: IF your normal trade size is 500 shares, would you still feel strongly about taking the trade with 3000 or 5000 shares? If so, you probably have targeted a strong play.) I like to play enough size so I can take a partial profit on the initial run (pay yourself from the first fruits!) then move a stop to breakeven or better, and let the remaining lot play out for the swing or term play IF you are lucky enough to have picked a trade with that kind of a move in it. Remember, it’s nice to hit a homerun every once in a while, but veteran players know the game is won with base hits. The homeruns will come with your frequency at bat, they are rarely planned.
This way, you will have a higher probability of starting the day with a profitable trade that will do wonders in keeping those evil emotions out of your trade decision process.
So what happens when your best analytical efforts don’t work and you open with a loser?
It happens. Astute traders know losing is part of the game. Successful traders also know that all large losers start with small ones and take their stops as they materialize without hesitation.
It happened to me today with in an ES Index Futures trade. I felt the ES was setup well for an upside continuation/breakout IF it could move above near-term resistance. Soon after the open, with solid volume the market moved higher triggering my entry. That was as far as it went. I didn’t panic. I double checked the technical factors that lead me to the trade initially and they were still supporting my ‘technical argument’ for this long-play decision. I hadn’t made any mistakes there. I then checked the market internals I track that help verify the directional bias of the overall market and they were still bullish; I hadn’t missed anything there. There was NO technical indication of a bearish condition. I held tight. The market moved no farther than my entry, triggered (a sweep) and took me out with my 6-tick stop loss. Not good when you feel you’ve analyzed the market direction technically correct and you lose…
I took a small loss (all losses are painful) but a technically managed loss for my first trade of the session. You know what happened. The market changed character, gave me a technically supported short setup just under the opening range low, triggered and then dropped like a rock for more than 20-ticks (5-points).
Trade Summary – After taking that first loss, I continued to monitor market conditions which changed to technically bearish and I found a good trade to short on the low of the morning. Playing the same size as my first play, I entered my short, took my initial partial profit (that wiped out my first trade’s loss), moved my stop to breakeven and trailed my stop just behind the downside run with my remaining position, for a nice second trade ending the morning in the green.
The primary goal, is to avoid an initial strikeout. The best way to do that is to wait for the strongest trade opportunity. If you should lose on your opening trade, continue to look for the strongest trade setups (those that are supported by current directional bias with volume) and stick to your tried and proven approach. Don’t miss out on strong trade conditions because of your emotions, stick to looking for the best plays.