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interesting problem and I would welcome input
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interesting problem and I would welcome input

  #1 (permalink)
Elite Member
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interesting problem and I would welcome input

I'm going to be as exact as I can to describe something I went through today. I'm hoping input from the forum will expand my knowledge base.

I should first let you know that I am a relatively new trader, honing my skills over the past 18 months; I went through the drill: trading, losing, learning, and now I am re-emerging with more knowledge, better skills and a good psychology to succeed. I still have TONS to learn.

Today, during a rally, I bought 2 contracts of coffee at 136.78, with a stop [loss] of 131.35. Given that I believed that the market might retrace, I placed limit orders at the typical retracement levels: 38.10%, 50%, and 61.80% marks for 1 contract each. During the day, I was filled on the first 2 contracts, which brought my average cost to 135.89; the market closed at 134.85; so I'm about $1600 underwater. After the close, I uncovered something that disturbs me, and I am nervous that I am holding an overnight position that may gap down at the opening.

Here's how I see my options: 1) hold on to a white-knuckle ride where the market opens, either down or up, but trades up during tomorrow's session; 2) adjust my stop closer and bail out with a loss; 3) purchase slightly in-the-money puts (delta is -47) to hedge my bet. However, I am not familiar with options on futures and have never purchased a contract; 4) leave it alone, and if I get stopped out, it's a loss (and not my first).

I'd be interested in knowing what the other traders think would be the best course of action. To this point, I am thinking to go with option #4.

Thank you in advance for your considered thoughts.

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  #3 (permalink)
Market Wizard
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Why did you enter the trade? If the reasons for entering the trade no longer hold (and you imply that they don't) then my advice would be to exit the trade immediately regardless of PnL.

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  #4 (permalink)
Market Wizard
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aldica View Post
... so I'm about $1600 underwater. After the close, I uncovered something that disturbs me, and I am nervous that I am holding an overnight position that may gap down at the opening.

Here's how I see my options: 1) hold on to a white-knuckle ride where the market opens, either down or up, but trades up during tomorrow's session; 2) adjust my stop closer and bail out with a loss; 3) purchase slightly in-the-money puts (delta is -47) to hedge my bet. However, I am not familiar with options on futures and have never purchased a contract; 4) leave it alone, and if I get stopped out, it's a loss (and not my first).

I'd be interested in knowing what the other traders think would be the best course of action. To this point, I am thinking to go with option #4.

Thank you in advance for your considered thoughts.

Hi aldica,

now that things are going wrong, you are investing time and thoughts in a running trade that one
normally should invest before the entry. And sorry, your post doesn't show the "good psychology" that
you claim.

It shows rather a stressed search for a way out of a deadlock. But stress and adrenaline are bad advisors.
The energy goes to the muscles and not where you - as a trader - need it.

Chances are that the reason for your state is the loss of $1600 that is above your risk tolerance and
presumably also above your average risk bearing ability (considering risk-of-ruin). The position could get
even worse for whatever reason. "For whatever reason" means that it is completely irrelevant what disturbs
you now; the loss is already real, only not realized yet.

More important questions are: Is your trade still valid or not? Would you enter the trade if you were flat?

If the answer to the first or to both questions is no, liquidate your position at the next opportunity.
All other ways out that you consider are either not in your hands, lock in the present loss (which is already
problematic for you) or even compound on the initial cause of your worries.

Regardless of the outcome of that single trade, I suggest that you rethink your risk and money management,
when your emotions have normalized again - with regard to your financial but also to your mental risk tolerance.

Cheers,
choke35

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  #5 (permalink)
Market Wizard
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half position = half the pain, less pain = more clear head. Cut your position in half first and figure out what to do with the rest.

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  #6 (permalink)
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look at the Price Action and Swing stuff...

The coffee had a good run if you look at my attached chart /never traded the coffee yet I believe, did si and few other ones but no kc/ anyhow the 1st push was 176 ticks from around Sep 24th, the 2nd 206 ticks, the 3rd 195 ticks and the 4th most recent one 135 ticks. I'd suggest for swing trades you look at the rotations - something like this chart - where the big guys are getting involved to change the most recent trend...

So my trade plan would've been if I were you - just based on rotations - to buy around 68 ticks pull back from the most recent high at $134.20, current swing low is 70 ticks at $134.10 and have an initial stop somewhere below 134, maybe 133.40.

If kc breaks below 134 the next area of interest might be around 130-131.

Also a question, do you know kc? I mean how does it move? I have to assume 135 area which was traded today might be a significant level, like a resistance a couple of month ago... I don't know kc and I am just asking.
Also not sure why you were buying kc for a swing trade now, however in 2 1/2 weeks kc had a 20% move to the upside which is quite a move in my books. Can kc move another 10-20-50%? sure it can, will do it without any more down move just straight up from here? who knows...

Hope this helps...

atata
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  #7 (permalink)
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choke35 View Post
Hi aldica,

now that things are going wrong, you are investing time and thoughts in a running trade that one
normally should invest before the entry. And sorry, your post doesn't show the "good psychology" that
you claim.

It shows rather a stressed search for a way out of a deadlock. But stress and adrenaline are bad advisors.
The energy goes to the muscles and not where you - as a trader - need it.

Chances are that the reason for your state is the loss of $1600 that is above your risk tolerance and
presumably also above your average risk bearing ability (considering risk-of-ruin). The position could get
even worse for whatever reason. "For whatever reason" means that it is completely irrelevant what disturbs
you now; the loss is already real, only not realized yet.

More important questions are: Is your trade still valid or not? Would you enter the trade if you were flat?

If the answer to the first or to both questions is no, liquidate your position at the next opportunity.
All other ways out that you consider are either not in your hands, lock in the present loss (which is already
problematic for you) or even compound on the initial cause of your worries.

Regardless of the outcome of that single trade, I suggest that you rethink your risk and money management,
when your emotions have normalized again - with regard to your financial but also to your mental risk tolerance.

Cheers,
choke35

I 100% agree with this. You get dumber in a trade not smarter. Due to lack of plan pre trade you are now scrambling but with the added emotions and stresses of losing. Sure it sucks, but take the loss chalk it up as a learning experience. And for every trade from now on until eternity have a plan before you enter.

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  #8 (permalink)
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Yup, stop loss around 134...trail if it holds....

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  #9 (permalink)
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thank you to all, for 2 reasons:

1) your thoughtful, considerate answers buoy my confidence to continue to come to this Forum with questions; 2) you actually advanced my trading learning curve tremendously.

I learned the hard way, in my first round of "trading from the hip" NOT to over risk my account. From what I've come to understand, this is quite a common occurrence. Although I didn't mention it and I should've, I was well within my own risk parameters.

Based on Forum comments, I see that this is a well planned trade. Win or lose, I did the right things and took the proper steps. You're all correct to see that I posted in a panic; I became scared because, although I am within risk tolerances, it is the largest position I've done in KC. The market retreated and I see a small gain presently (it would have been a bigger one, but I canceled the last limit order out of panic).

Thank you to everyone for holding my hand.

Good trading.

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  #10 (permalink)
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aldica View Post
1) your thoughtful, considerate answers buoy my confidence to continue to come to this Forum with questions; 2) you actually advanced my trading learning curve tremendously.

I learned the hard way, in my first round of "trading from the hip" NOT to over risk my account. From what I've come to understand, this is quite a common occurrence. Although I didn't mention it and I should've, I was well within my own risk parameters.

Based on Forum comments, I see that this is a well planned trade. Win or lose, I did the right things and took the proper steps. You're all correct to see that I posted in a panic; I became scared because, although I am within risk tolerances, it is the largest position I've done in KC. The market retreated and I see a small gain presently (it would have been a bigger one, but I canceled the last limit order out of panic).

Thank you to everyone for holding my hand.

Good trading.

How'd this work out for you, i see KC gapped open a touch, auctioned higher before topping out and heading lower? Did you get out without too much damage?

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