We have all been there. Our indicators are on point, order ticket filled out, one last gasp and boom! Trade sent and confirmed. Oh and all of a sudden the trade goes against you. But why? What do we do next? Well, let’s take a look at a few things and analyze what happened and what to do next.
Let’s first go over one important point! There is no such thing as the perfect entry. It just doesn’t exist. You do your best to pinpoint an entry and you take the plunge. It can immediately go in your favor. Which in that case congrats! However, more often than not, a trade might go slightly against you for a bit before it turns and aligns itself with what your strategy had in mind. The timing of a trade is a fool’s game. The execution and discipline that follows are one of a true trader.
Keep in mind the word discipline. This means having either a physical or mental stop loss in place where you say, you know what? I screwed up. Let me get out and try this again. And that’s fine! We want small losses always. This keeps us sharp and not dwelling on a big dip in our trading account and making mistakes just to try and make it back. Case in point, when I trade futures, I give myself a one point mental stop. Now, this can vary on the strength of the market where I might adjust it when I feel that its just an over correction or the reversal I’m looking for is extremely close to happening. 8 times out of 10 it does just that. So I cannot complain there. The rest of the time I will take that small loss and assess the situation. Ask yourself whether the indicators were off, is the market in some kind of very strong trend, or even maybe I was too excited to get into this trade and didn’t get in when I wanted too. Rather just got in because I wanted too.
This is all a learning curve. Now let’s talk about stop losses. These are very important in any trader’s arsenal. Not only does it protect you. It also gives you a piece of mind. In trading placing too tight of a stop will just hurt you more than help you so adjust them accordingly. Once you have acquired that mental fortitude to know when to let go of emotion and have a mental stop in place then you are golden. Each stop loss varies. From stocks to futures it’s going to be different. You have to know your profit target as well as what you are willing to risk.
The way I trade is simple. I trade the reversals. This allows me to capture extreme momentum to the upside or downside. I look for signs of weakness in those trends and take advantage of the reversal and start of a new trend. This also helps with my entries. I know I am reaching a very strong overbought or oversold condition and that a reversal must happen. Or should I say most likely will happen? I never know for sure. So even if I get into a trade and it slightly goes against me, I stay calm and know that it will turn in my favor because my indicators are being hit and my rules are being met.
In the end, timing a perfect entry is tricky. However, it can be done. Just follow your indicators and your gut instinct and as you watch and trade the markets day in and day out, you will know how to get closer and closer to that perfect entry. For now, focus on getting your timing better and better and don’t panic when a trade goes against you. Just quickly assess the situation and whether it looks like you should stop yourself out or wait for it to turn to your favor. Do your homework and put these factors into your strategy. It will not only help you keep losses to a minimum. It will also help you stay sharp and focus on making solid trades. Keep the losers short and ride the winners. Take profits accordingly and you are off to becoming a better trader!