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As difficult as it may be to admit, all of us have initiated an e-mini trade that was regrettable. You know the kind of trade I'm talking about; the one where you start out 3 or 4 ticks out of the money and it only gets worse. Some common options are: • Do you “hang in there” till the bitter end and hope the price turns around? • Do you immediately bail? • Do you double down? • Do you resign yourself to yet another loss? Unfortunately, even the most experienced trader will find himself or herself in a hopeless trade. (For the purposes of this article, we will forgo any discussions about hopeless trades) A trader’s primary responsibility on a trade gone bad should be capital preservation. In short, once you're in a bad trade, don't make it worse. In my trading, my actions during a bad trade will begin with me looking for some logical waypoints for the price action to start or stop. These waypoints would include previous support/resistance lines, pivot points, and even Fibonacci lines. I want to get an idea about how far the trade could potentially move against me and gauge any potential profit targets. After gathering this information and rapid fashion, I ask myself: Of the two possibilities, which of the two scenarios is most realistic?” Note to readers: it is sometimes easy to forget that if a trade has moved against you 10-12 ticks, there is probably an inherent flaw and your decision to enter this trade. As you might imagine, the outcome gleaned following careful examination of the two scenarios we described in the previous paragraph generally result is familiar answer; We entered into a bad trade and the potential exists for it to get worse. Recommendation: exit trade as soon as possible. And this is where some of the really odd behavior begins… • No small number of individuals will have and developed an emotional attachment to their trading position and will find themselves unable to exit until they are stopped out. Emotional attachments in trading can be problematic and costly. • Another group of individuals will remain convinced that their initial entry was a sound one (if not profound) and will be going with the emotionally attached group straight into their stop loss. This group of traders has a difficult time with cutting losses because it would entail them admitting they're wrong. For the record, I'm wrong all the time. • The veteran investors will look for the best logical exit point, whether it results in a gain or loss, and plan their exit from the trade. There is no emotional or ego driven variables in arriving at this decision; the decision to exit was based upon estimated probabilities and analytical analysis. In summary, we have looked at a variety of potential reactions to working a losing trade. At times, traders make inexplicable decisions under the stress caused by the trade. In most situations, careful analysis of the potential of the trade will result in a decision exit the trade with the least damage possible. Real Live Trading Doesn't Lie. Spend 3 days with me, in my trading room, and see if you are one of the many that can profit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.
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e-mini trading, e-mini trade, exit trade, bad trade,
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