Quote from Huyang:
Have been learning to day trade ES since last fall, my biggest challenge at this time is not to exit when i feel i should, particularly sometimes widening stops to give more room for the trade to work.
If you've ever (even just once) widened your stop to give the trade room to work and it allowed you to exit break even or with a profit, you're now in possession of a dangerous vial of Hope. I believe it's important to get rid of that, just pour it down the drain the way an alcoholic who's hit bottom goes through the house and pours all the liquor down the drain and prepares to start over, one day at a time.
You want to start over one trade at a time.
The desire to widen a stop has nothing to do with giving a trade room to work. When you placed that initial stop, that was all the room you and your plan allowed, for a reason that's (hopefully) based on probabilities (win rate + risk:reward ratio).
The desire to widen the stop has to do with avoiding a loss. You haven't yet accepted that profitable trading involves wins and losses and the profitability comes from honoring your plan over a series of trades.
Just as the recovering alcoholic has certain steps to take whenever the desire to drink arises, the recovering trader will have a much better chance of long-term success if s/he has an action plan for when the desire to move stops, trade without a signal, hesitate on valid setups, etc. arises.
1. Make a vow to never widen a stop. Your plan depends on discipline and consistency. Messing with the parameters of your plan skews the odds, usually unfavorably over time, despite occasional successes.
2. If price is approaching your stop and your brain starts yearning for that vial of Hope, stop! You placed your initial stop at a level that would invalidate the thesis for your trade. Quickly, look at the price action in front of you and pretend that you're flat, no position on at all. Then ask yourself if you'd want to be long short or flat
right now.
Read this as often as possible until it sinks in:
"The methodologies that we have access to, these mathematical formulas, do that for us. But you have to understand that thereâs no possible way that these mathematical formulas can predict the outcome of these patterns on a trade by trade basis, only on a series of trades. So when I get a signal from my methodology, at the most fundamental level what this is telling me is that the odds are in my favor that somebody is going to come into the market (this is what the pattern means) and bid it higher than here if I bought or offer it lower than here if I sold.
Thatâs all that itâs saying.
Now theyâre either gonna come or theyâre not, and so as a result I donât look at this as being a ârightâ or a âwrongâ; I look at this as â
How much distance am I going to give the market to move away from my entry point to tell me that theyâre either going to come or theyâre not, and any further is not worth the cost of finding out.ââ
- Mark Douglas
