Post entry….. Part 1…
Coming back to where I left the series of articles that I have promised, the published articles have covered everything that is required for reading the PA to understand the current context and the environment (which is of primary importance), then anticipating the high probable future direction, and then finding a low-risk entry. All those articles are organized here.
Your job is just half done until now. The real game starts post entry when you are staring at the price ticking up and down and your brain freaks you out with it’s talking. A majority of traders end up exiting good trades early and exiting bad trades late causing a lot of financial and psychological damage because of the mind’s chatter post entry. There are so many psychological evidence to prove that the unorganized mind always tries to make you a loser, especially in performance-based professions like sports and trading. I’m not going into details of that as that is out of the scope of this article. If you have a few months of trading experience, you understand what I’m saying.
If you are good with the analysis part before the entry, managing the trade post entry is fun and exciting provided you have the right set of expectations towards the market. Let me phrase some of them here.
No matter how good the setup looks, it always has the potential to fail when candles start printing at the hard right edge of the chart post entry. So make sure you protect your downside both financially and psychologically.
Every single tick post entry will not move in your favour. Don’t expect that to happen as it totally screws up your mind when the market moves against you which in turn affects every decision you make thereafter. Deal with candles, not with ticks. I would like to talk a bit more detail about this point later. This is one of the reasons why I fell in love with 5min. for day trading(leaving 3min.), Hourly and 4H charts for swing trading.
If you watch every single tick, you trade like a dick. This is again in tune with the previous point. Stop dealing with ticks. Deal with candles. Once you decide on that, you don’t have any business with the charts until the candle closes. I personally set up a timer that rings 20 seconds before 5min. candle close and I try not to look at the chart until that rings (which I fail to do a few times due to the urge of staring at ticks). My results drastically got improved while managing the trades after that.
You can’t trade the range bound markets like that of the trends and vice versa. Ranging markets are there to rip of trend-following approaches. Trends are there to rip off those traders who always like to fade the breaks outs and weak swings at new highs in uptrends or new lows in downtrends (very common habit). Where you look for trades, what kind of setups, the trade management and even setting the targets to differ in both these environments. If you are finding it hard to trade one of them, then don’t trade. Move back to Sim on days like this or totally take a session off when you sense that your edge is not working in the environment.
You don’t need to pick tops and bottoms. In fact, you cannot consistently pick them. That happens once in a while and consider that as an accidental event rather than your skill so that you will have the right expectations towards the next trade. If you make that as the primary objective of the trade plan, you are doomed. Trust me, I was there and I really had very very bad experiences with that. Instead, focus on identifying the right setups at the right areas in the right environment, accept that there will always be some risk associated with every single trade and then give yourself permission to lose in few trades. Contain those risks by proper position sizing and that opens the doors for your further development. Once all these things are settled, then start working on better entries with limit orders into your setups for reduced risk.
Be conservative with the targets. When I say conservative, I don’t mean placing targets at 1R, 2R or some crappy tick-based targets. Leave that kind of target to scalpers. Know the potential of the trade and place the target at proper levels from the left of the chart. At least take 3/4th of the position with a limit exit and ride the remaining 1/4th with a trailing stop. Some say half and half position management. It’s totally subjective and you have to choose which one keeps your mind at peace.
Make survival as your primary objective of risk and money management. If you survive, you can take the next trade. But if you don’t, I don’t need to say the rest. 😀
I started this series with the intention of introducing my own approach to markets and I benefited equally like you from these. Before moving further, I want to give two more bullet points that talk about my approach to two different environments. I actually realized recently that I made those mental models unconsciously while talking to one of my friends. Here they are…
In a trending market, I trade the impulsive swings of the short term trend which starts at the end of the corrective pullbacks and complex pullbacks, targeting the immediate minor supply/demand level or HTF S/R level. ie. I don’t want to hold positions during deep pullbacks in a trending market.
In a ranging market, I predominantly look for BOFs of the range boundaries targeting the other boundary with conservative trade management (ie. with a loose trailing stop), and BPBs when the breakout is strong and price got accepted after the breakout beyond the boundary. I manage TST setups aggressively (with aggressive stop trailing) targeting the immediate swing highs and lows to the left of the trade entry.
So every trading decision that I take post entry will be in tune with one of the above two points depending on the environment that the market is in.