B,
Good questions, long answers but that's quite alright because the night is
young, the stouts are cold and I love trading. I had a great trading day and
you have been a journal reader for quite a while now so I will give you the
answer you deserve and nothing less.
I don't think you are nitpicking just digging deeper into more advanced topics
and that's fine, just take everything with careful consideration because
even-though I have some experience, I'm most definitely no guru or have I
ever met one that was even close to being one. Examine alternatives at all
times from various sources and compare notes.
OK back to your questions.
If I get stopped out on the first entry, as long as support is still
supporting, I would be willing to re-enter on the first evidence of
strength returning to the play. Most definitely, I will not let one quick stop
kill my concentration but limit my losses I must, averaging down I will not,
ever. Usually the second attempt works very smoothly, no surprise there as
they say the first wave is always for the newbies while the smart money sits
back waiting for some real confirmation. Remember, it's never about the best
fill but about the best feel. And by feel I mean numerous confirmations,
what you actually feel means nothing to the market as you are an atom and the
market is the universe.
Obviously you don't go nuts and just buy the next drop because if it's dropping
its doing so for a reason. It is your duty as a responsible trader
to determine if the price drop is profit taking or a possible change of
direction, car size on time and sales is useful in this area.
The idea of an even "better fill" is dangerous so make sure you are not fooled
into such actions.
However, if a sign of strength returning is present that's another story.
Obviously, if support is broken, it's time to look at the big picture again and
re-evaluate.... and by broken I assume by now you know I mean a solid bar
closing below it.
Notice, there is a huge difference between doing this and averaging down because
as you re-evaluate the scenario you have already limited your losses. Contrary
to averaging down where you keep losing on every tick against you regardless if
there is strength returning or not. Frankly, a real dangerous way to trade but
since the accuracy is high, traders keep choosing this so called money
management "tactic". No offense but this is simply, stupidity.
The fact of the matter is that when you are correct in your evaluation of
price action, a great deal of the plays will take almost no heat because you
have and must look at all angles before entering a play. After-all, this is
your hard earned money. I would rather waste it on stouts or my kids than
some on some random dude at the other side of my trade or worse, the
broker. That's what I look when entering a trade, very little heat, if any, and
a pleasant ride to the next level. Naturally, I don't always get this but this
is what I shoot for.
The whipsaw you speak of is easy to avoid because unless strength is found you
stay on the sidelines. You do not go back in, just because it is
,supposedly, a better fill, you go back in when price action gives you the
green light.
It's hard to get multiple strength conditions without price actually following.
If the chop is present there wont be much strength to notice right so don't let
this scare you. Feel free to study the charts and confirm my findings, in fact
I encourage it.
When support is broken by wicks, that could possibly just be other trader's
stops hitting at market, don't let those wicks fool you, the close is
everything, always. In fact a close + 1 tick at the extreme of the closing
bar is even safer, that's a strong tip I just gave you, use it. Why do you
think hammers at support with piercing wicks are so powerful ? Clear sign of
exhaustion. Once again, the hammer alone is not enough, multiple confirmations
at all times. Why ? Because no one thing works by itself.
If you wait for a retracement and then for strength to return if strength is
really returning why on earth would you need a big stop, it's supposed to be
strength at or near support right ?
Some traders claim large stops are required due to noise or volatility I say
it is their ineptitude to read price action correctly. Not claiming super
-trader here, took me a while to learn and accept this. I've said it in the
past and I will say it again and again, you beat this game with small losses
and all kinds of winners. Great accuracy is a bonus and something that comes
much later, the real key here is riding those wild runners remembering that
price rarely goes up without retracing and that re-entering a trade is not
only an option but a powerful one. An option that can be applied even
when things are going well.
One more thing, if you do re-enter a second time because the play is still very
much valid you better be prepared to ride this one to a displacement bigger than
the original one, assuming the fill was actually, a "better" one. After-all,
it is still the same swing.
Lot of opinions in this department, choose what you feel comfortable with but
most important what works best for your style and psychology. I can tell you
what works for me but what works for you might be something completely
different.
Yes, the size of the stop varies depending on how many ticks below previous bar
or bars I allow the stop to take. Anything remotely out of the ordinary and
that would be something I'm not interested in taking because I trade to win big
and lose small as much as I can. It sounds crazy but some of my best plays are
when I buy right at support levels or short right at resistant areas,
fortunately they also require the smallest stops, food for thought. In fact
a dear friend and fellow trader only trades like that, is he effective ? You
better believe it, is his accuracy rate high, absolutely not but he knows when
it's time to pick support and when it's time to pick resistance and his stops
are based on confirmation not exact numbers, except for his emergency stop of
course. I like to do something similar but I always require my confirmation no
matter how close to support or resistance the entry is. Obviously, today was
not an optimal day to be shorting resistance but that's easy to determine if
you are a student of price action.
I might seem like a nice guy, and I think I am, but when I'm in the battlefield
fighting other traders I'm the meanest mofo you can imagine, I protect my
capital like my children and when I'm right I want as much as I can without
neglecting any angles. I like to think I'm taking money from institutions
and that no institution is taking money from me.
To conclude my friend, Risk Management is your best ally.
Hope it helps and keep the faith.
Anek
