The second reason many traders fail to “stay with the move” is the fear of giving some profits back. The overriding emotion of having to get every penny in every trade causes them to get jumpy as soon as the stock does a stutter step. That’s fine if you are willing to get right back in if the trend resumes, but for most traders this proves very hard.
If you have to bail at the first sign of a slow down in the trade it may prove all but impossible for you to get back in if you wrongly exited. Once you have made the decision that the move has ended the most probable scenario for you to realize that you exited too soon is because the trend has resumed and now you would have to enter at a worse price than you exited. Very hard for all but the more experienced and advanced traders to do, so you grab your quarter and watch it go a buck. Not much fun.
We have all experienced this many times, but what are you going to do to overcome this problem? Are you really putting the effort into overcoming this common trait?
This week was a great week in the markets with many stocks putting on extended moves off of low risk entry points. This is the kind of week I practice and prepare for everyday. I was able to capitalize on many “dime for a dollar” trades this week multiple times each day, all while not trading anything remotely silver!
Some of the traders I mentor didn’t “stay with the move” in many of the trades that they entered in the same price range as me. I asked why they weren’t still in the trades and the answers although varied all sounded eerily like a fear of giving something back. A few times it was just that their tape reading skills are still developing and hopefully they use it as a great learning experience. In truth they risked a dime to make a quarter and I risked a dime and got a dollar or more a bunch of times. Not too bad if it’s your first trade of the day maybe, but after a few paper cut losses my winner cleaned up the losses and put me well up on the day. They were only back to even or still down slightly.
I told one young and up and coming Canadian trader that I wanted him to exit only ½ his position at our first target then move his stop to even on the rest and set a few alerts and take it off his screen. I told him I was secretly wishing for it to come back all the way and stop him out so he learned that giving something back won’t kill him. Now in all truth the probability of that happening was fairly low, because the trades we entered had strong confirmation from the tape (the reason they went for a dollar or more), so I wasn’t really asking him to throw money away. I just wanted him to put some money in his pocket and see if he could make a better more relaxed assessment of the tape in managing the trade with reduced risk.
Through this strategy he can better manage his winners and with time come to trust what he is reading on the tape which will allow him to “stay with the move” holding a full position. The fear of giving back will cost you a small fortune over the course of a long career unless it kills your career first. Finding a way to “stay with the move” is essential and not an option and makes trading so much more enjoyable.
Traders have to find a way to stop magnifying every wiggle and truly focus on what the tape is saying. Risking “dimes for dimes” is a tough way to make a living. Now “dimes for dollars” that’s the ticket!
Jeff Davis @Shaq48_Trading