Bella,

How do you distinguish between patience and complacency?

Patience is what I call it when I’m riding a trend.

Complacency is what I call it when price initially goes my way, but then retraces and eventually stops me out. This happens to me most in two cases. In these cases I feel as though more aggressively taking profits would have helped.

This happens to me most often when fading a lower high or the top of a consolidation range: I sell the high looking for a move below the bottom of the range. Instead of covering my short at the bottom of the range I hold for a move lower. The upper range gets tested several times, luring me into thinking that the resistance will hold. Then price moves up a bit, touches off the stops and price shoots higher, stopping me out.

I think that this is just me not shorting properly. Never fade a strong market. But this is something that I imagine other readers might struggle with.

I think that I can deal with the complacency issue by either avoiding this trade altogether, or taking at least partial profit at the bottom of the range and moving my stop to entry after hitting T1, starting out with more size initially and scaling out, moving stops to reduce risk along the way. I haven’t quite reconciled this against “riding your winners” though.

Is this just a trade management flaw on my part?

Can you share your thoughts on this?

Bella

You’re on the right path thinking about the proper holding time for your trades. A few things:

1) There is a difference between shorting the top of a consolidation range if the stock is in an intraday downtrend as opposed to an intraday uptrend. There is a difference between shorting the top of a consolidation range with a stock in a downtrend that is near long term support as opposed to points from support. You are missing two very important factors in your decision-making. What is the intraday trend of the stock? Where is this stock on our longer term charts? You need to consider them when you are determining your holding period.

For example I love the short at the top of a consolidation range with a stock in an intraday downtrend that has points to support. That is a wonderful risk/reward opportunity. I am not of fan of this set up if we are near significant long term support.

For example, last week I got long NKE in a clear intraday downtrend because I thought it was oversold and in a beautiful long term uptrend. Without NKE being in that beautiful longer term uptrend, I would not have considered the long.

2) Fading a strong stock works less often in a strong market.

3) Fading a gap and then opening drive after a lower high is a quality trade if you keep a tight stop and play for a significant reversal.

4) Your issue is not complacency it is pattern recognition. Your patterns lack the proper detail. Each consolidation pattern can be very different when considering the intraday and longer term trends. Also if you searching for a reversal trade you must hold for the real move. This can be the hardest part of the trade. The top always looks the strongest. And so we cover too early, type up the stock an hour later and see it drifting another two points lower. If you cannot hold such a trade for the real move then you should not make such a trade.

5) Getting stopped out a position does not mean you made the wrong decision. Your job is to do the right thing. Sometimes that means holding and subsequently being stopped out after being in the money.

I hope that helps. Keep working on your trading game!

Bella

One Good Trade

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