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Been there many times. Now you have to figure out what it takes for you as an individual to stay in. For me it was going completely automated. But that is not a necessity or a reality for everyone. Not an easy journey.
"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
Here are some ideas... I know you have been watching different higher time frames. This "wave" is 2-200ema. You are essentially trading the yellow part on this it is 2-15ema (I know you are using 2-21ema)
So when is a pull back a change in trend...? usually after volatility slows down. The graphic has some ideas on that showing when volatility slowed down and price goes into a lower part of the big wave (the red part) vs just dipping into the aqua or green.
“Be who you are and say what you feel because those who mind don't matter and those who matter don't mind.” - Dr. Seuss
Mark Douglas' book Trading in the Zone has some interesting observations.
I AM A CONSISTENT WINNER BECAUSE:
1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent
success and, therefore, I never violate them.
Now he states this...
Taking Profits.
Believe it or not, of all the skills one needs to learn to be a consistently successful trader, learning to take profits is probably the most difficult to master. A multitude of personal, often very complicated psychological factors, as well as the effectiveness of one's market analysis, enter into the equation. Unfortunately, sorting out this complex matrix of issues goes way beyond the scope of this book. I point this out so that those of you who might be inclined to beat yourselves up for leaving money on the table can relax and give yourselves a break. Even after you've acquired all the other skills, it might take a very long time before you get this one down pat.
Don't despair. There is a way to set up a profit-taking regime that at least fulfills the objective of the fifth principle of consistency ("I pay myself as the market makes money available to me"). If you're going to establish a belief in yourself that you're a consistent winner, then you will have to create experiences that correspond with that belief. Because the object of the belief is winning consistently, how you take profits in a winning trade is of paramount importance.
This is the only part of the exercise in which you will have some degree of discretion about what you do. The underlying premise is that, in a winning trade, you never know how far the market is going to go in your direction. Markets rarely go straight up or straight down. (Many of the NASDAQ Internet stocks in the fall of 1999 were an obvious exception to this statement.) Typically, markets go up and then retrace some portion of the upward move; or go down and then retrace some portion of the downward move. These proportional retracements can make it very difficult to stay in a winning trade. You would have to be an extremely sophisticated and objective analyst to make the distinction between a normal
retracement, when the market still has the potential to move in the original direction of your trade, and a retracement that isn't normal, when the potential for any further movement in the original direction of your trade is greatly diminished, if not nonexistent. If you never know how far the market is going to go in your direction, then when and how do you take profits? The question of when is a function of your ability to read the market and pick the most likely spots for it to stop. In the absence of an ability to do this objectively, the best course of action from a psychological perspective is to divide your position into thirds (or quarters), and scale out the position as the market moves in your favor. Here's the way I scale out of a winning position.
When I first started trading, especially during the first three years (1979 through 1981), I would thoroughly and regularly analyze the results of my trading activities. One of the things I discovered was that I rarely got stopped out of a trade for a loss, without the market first going at least a little way in my direction. On average, only one out of every ten trades was an immediate loser that never went in my direction. Out of the other 25 to 30 percent of the trades that were ultimately losers, the market usually went in my direction by three or four tics before revising and stopping me out. I calculated that if I got into the habit of taking at least a third of my original position off every time the market gave me those three or four tics, at the end of the year the accumulated winnings would go a long way towards paying my
expenses. I was right. To this day, I always, without reservation or hesitation, take off a portion of a winning position whenever the market gives me a little to take. How much that might be depends on the market; it will be a different amount in each case.
In a bond trade, I usually don't risk more than six tics to find out if the trade is going to work. Using a three-contract trade as an example, here's how it works: If I get into a position and the market immediately goes against me without giving me at least four tics first, I get stopped out of the trade for an 18-tic loss, but as I've indicated, this doesn't happen often. More likely, the trade goes in my favor by some small amount before becoming a loser. If it goes in my favor by at
least four tics, I take those four tics on one contract. What I have done is reduce my total risk on the other two contracts by 10 tics. If the market then stops me out of the last two contracts, the net loss on the trade is only 8 tics.
If I don't get stopped out on the last two contracts and the market moves in my direction, I take the next third of the position off at some predetermined profit objective. This is based on some longer time frame support or resistance, or on the test of a previous significant high or low. When I take profits on the second third, I also move the stop-loss to my original entry point. Now I have a net profit on the trade regardless of what happens to the last third of the position.
In other words, I now have a "risk-free opportunity." I can't emphasize enough nor can the publisher make the words on this page big enough to stress how important it is for you to experience the state of "risk-free opportunity." When you set up a situation in which Thinking Like a Trader there is "risk-free opportunity," there's no way to lose unless something
extremely unusual happens, like a limit up or limit down move hrough your stop. If, under normal circumstances, there's no way to lose, you get to experience what it really feels like to be in a trade with a relaxed, carefree state of mind.
To illustrate this point, imagine that you are in a winning trade; the market made a fairly significant move in your direction, but you didn't take any profits because you thought it was going even further. However, instead of going further, the market trades all the way back to or very close to your original entry point. You panic and, as a result, liquidate the trade, because you don't want to let what was once a winning trade turn into a loser. But as soon as you're out, the market
bounces right back into what would have been a winning trade. If you had locked in some profits by scaling out, putting yourself in a riskfree opportunity situation, it s very unlikely that you would have panicked or felt any stress or anxiety for that matter.
I still have a third of my position left. What now? I look for the most likely place for the market to stop. This is usually a significant high or low in a longer time frame. I place my order to liquidate just below that spot in a long position or just above that spot in a short position. I place my orders just above or just below because I don't care about squeezing the last tic out of the trade. I have found over the years that trying to do that just isn't worth it.
One other factor you need to take into consideration is your risk-to-reward ratio. The risk-to-reward ratio is the dollar value of how much risk you have to take relative to the profit potential. Ideally, your risk-to-reward ratio should be at least 3:1, which means you are only risking one dollar for every three dollars of profit potential. If your edge and the way you scale out of your trades give you a 3:1 risk-to-reward ratio, your winning trade percentage can be less than 50 percent and you will still make money consistently. A 3:1 risk-to-reward ratio is ideal. However, for the purposes of
this exercise, it doesn't matter what it is, nor does it matter how effectively you scale out, as long as you do it. Do the best you can to pay yourself at reasonable profit levels when the market makes the money available. Every portion of a trade that you take off as a winner will contribute to your belief that you are a consistent winner. All the numbers will eventually come into better alignment as your belief in your ability to be consistent becomes stronger.
I know this is a long post that I cut an pasted, but I think this is very interesting, as this is exactly what I did this morning on my first trade. Thats how I was able to stay with it for over an hour.
My last contract was stopped out at 96 ticks. I held through the news and tightened my stop, so that if it took off, i still had my position.
Very informative VinceVirgil. I was under the impression you were not using multiple parts in your journal. Is the scaling out approach something new to you?
No...have been using it for months. Its the only way I can stay in a trade for a long period of time, knowing that I have a no risk position, and I can manage it from there. Targets vary. But the general premise is the same...
Thats a pretty chart, I don't have anything like that.....the indie I use is hard coded with the MA's and I'm not a coder so not gonna change them at this point.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
I've read Mark's book three times. The part you quoted is the only part of the book I highlighted. I've struggled with the scale out thing now for a long time. Its not optimum in terms of holding the entire thing to the larger targets. BUT it is optimum in terms of helping one stay rational with regards to their emotional issues of holding for big targets.
I currently scale out at 1X and try to hold for 4X risk. What typically happens is I get the first position scaled out and then I get a BE on the second bit or it goes up to 2XR and comes back, and after a period of back and forwards I get impatient and get out. Usually just before it shoots in my direction....or, I determine to hold it no matter what and its a loser. Or, I hold it like today and it doesnt get to 4XR and I settle for something I probably could have had much earlier in the trade without the extended hold time. Its all about the uncertainty. I know that and I accept that but my personality is strategic planner, an attempt to introduce some order into chaos. Perhaps that will never happen and I just need to fully accept that.
Anyway, I've been toying with the idea of a three stage scale out like Mark Douglas suggests. I can capture the meat of a possible move while giving myself the possibility of capturing a large runner with the last bit. This will make me feel better about taking profit and feel less badly about letting price come back on me with the runner. I'll decide before tomorrow. I also have to take into account my risk. My normal risk is 4 lots. This gets me +/- with in my per trade risk profile. If I go three positions, I won't be able to scale out evenly. I am tempted to scale out the first two at 1XR , 1 at 2XR and let the last one rest run to where ever it goes.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
Trade 1. I get scale one and two filled. No risk trade at this point. Strong trend appears to be in motion. Price pulls back. I get a continuation entry.....ADD another 3 lots, scale out as normal.
