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Get Some Help With Day Trading by Jobo Smith
Expecting a miracle?? Well it won't happen. This article is written to deal with trying to trade out of a losing position, NOT to ignore stop losses. Ignoring stops is the surest way in the world to take all the money in your account and just flush it down the toilet. I am serious. While that might help you in the short run eventually there is a 100% chance you will have a massive loss, like 50% or more on your money lost that is invested in the trade if you don't use a stop. Another thing to remember, if you accumulate all your money into a portfolio of losing positions,[link widoczny dla zalogowanych], you have nothing left to trade with. Every large loss starts as a small loss that is ignored - most of the time this is learned from taking a loss and then watching the stock turn and move in the desired direction. So the thinking is "They are not gonna get me this time". This is how traders learn to trade with bad habits.
The first thing to realize, there are 4 reasons losses that can happen when you are in a day trading or swing trading.
1. Timing is off on the entry
2. You are dead wrong on the direction
3. News items come out and move stock or index against you
4. Your price target to exit is too far away
We will address these one by one.
1. Timing is off on the entry
If your entry timing is off, this usualy means the price will move a bit in your favor, then against you within the first 5 to 10 minutes. The amount the price moves against you will be way more than any profit so far, but it does not go to the stop area either. The key to identifying this is the stock will hesitate up and down, just below your entry for long or above entry for short. It should not make a beeline against you and it should not go right near your stop in the first few minutes.
The best way to deal with this type of trade is to assume most of the time you trade you are going to be off. Buy or short only 1/2 to 2/3 the size you want where you think the entry should be. To make sure this never happens, do not use market orders. Put a limit in just slightly below market, almost every time you will get filled. You need to be aware of what type of trade it is - for example on a breakout you probably need to go market or you will miss it. Most trades you enter will not immediately run in your favor, including breakouts. Once you receive a fill back, make sure you place an initial stop loss for that position. Wait 5 minutes and see what the stock does. If it moves in your favor immediately, that means you r timing was spot on and you just trade with what you have as a position.
Most of the time the best deal is to stick with day trading what you have. If the stock moves against you more than for you in the first 5 minutes, but is not a beeline against you (meaning it looks like the trade will stop out etc), then put in an order to add at the low of this 5 minutes (for long) or the high (for shorts). If you are an aggressive trader, you can put in some additional orders and press bets above the high for longs or below the low for shorts. If you are not able to get filled on your better price add shares, the press bets additional shares will usually work out because this means there is not much selling. If you get your better price add, cancel the press bets add. If you get your better price add, you can either move your stop down slightly but increase it to include all shares, or place a second stop lower on this second add - it's up to personal choice. If you are able to press your bets and add, make sure to move your stop loss to just below the low of the 5 minutes, and do not forget to increment up the shares to cover the additional purchase or short.
2. You are dead wrong on the direction
This does happen, even to the best traders. No matter what you try it fails, breakouts, reversasl, or trend following - common theme is you are just dead wrong. This type of trade is easily identifiable from the start, within a few minutes it has already moved further against you than you expected to make if you were right from the start. By this I mean the upside is severely limited (for longs) or downside limited (for shorts). This means it can move easily one direction, but really, really struggles in the direction you bet.
Usually if you see this happening, the only chance you have is to try to double down near your stop. You are looking to risk another 15c to 20c on double size, betting it will turn in your favor before you stop out. If you try this you really have to be disciplined. Do not expect to make money on the trade. The thinking is to try to minimize the loss by catching a turn near the stop area, with minimal risk on the add. If you can cut the loss in half or even get to even, get out. Move on to the next trade.
Advanced method when this happens would be to move the stop up on all to just below the turn IF you doubled down and actually caught the turn. When it goes halfway back from your second entry to your first entry,[link widoczny dla zalogowanych], sell the add position. On the additional shares you want to keep you stop to just below that entry. The theory is the side that was pushing the price so far against you finally got washed out, so give the rest a shot. Because you made a bunch back with the added shares, if you get stopped you will lose less than if you did not do that. It is your call to decide if that is the best thing or to just exit all of the position with a minor loss and move on.
3. News items come out and move stock or index against you
This is arguably a tough situation. You have to be able to analyze the news very quickly AND decide the impact. The call is would this type of news cause the stock price to go far enough to hit the stop level? If the answer is probably yes, exiting at market before the stop will save you money. If you think that the news that came out will not stop your position,[link widoczny dla zalogowanych], then the best plan is to exit on a small counter move the other way. Most of the time there is no good way to get additional shares if you get caught on the wrong side of a news play. Occasionally the market will react in way A, but a few minutes later they realize they are wrong (or someone made a bad assessment, and the market is changing its mind) and react in way B. IF you can detect this will probably happen or see it happening, the add point is the high of the bar where the news came out, that break in price. Usually that will run stops and trap whoever was playing the news as a quick trade and force them out.
4. Your price target to exit is too far away
This is common to. You have to kind of guess based on how the stock has been trading, localized volatility, and support resistance points where a price move might go to. I can be commong for a trader to think a stock will move to point A, but it cannot even push to half of A. Usually these types if you don't monitor them real close will turn into losing trades. The main reason is a scale up seller (for long bets) or scale down buyer (for short bets) is betting the other direction and absorbing a lot of the volume.
Most trade setups attract attention, so the more obvious a trade looks, long or short, and it does not really do that or struggles, the bigger the indication is to get the heck out. This can result in a huge move the other way, as traders are trapped on the wrong side. There is no real method to add to work your way out of bad http: //www. mytradingrobot. com/, you really just need to pay attention. A general rule is if you think its acting weak and think you should exit - just do it. Your instincts are telling you something important - for the trade setup, the stock is not trading like it. Flattening the position is often the best solution because you are looking to lose less than if you get stopped out. Also remember if you happen to exit too early and realize it is a mistake,[link widoczny dla zalogowanych], you can get back in the position in a matter of seconds.
Do not expect to make money on every trade, its simply not possible - you have to pick your battles. If it appears something is off or wrong with the way the stock is moving, take any loss and just move on. Sticking around and trying to always make money will actually result in bigger losses eventually. When a trade is really going poorly, usually you will be offered one chance to get out - it is up to you to capitalize on it and take it.
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