Anatomy of a bad trade

Discussion in 'Psychology' started by steveosborne, Jul 7, 2005.

  1. Systems generating profits over an extended period of time usually have successful trade rates much closer to 50% than 100%, which leads me to be believe that it all comes down to being skilled at quickly identifying wrong trades.

    Emotions seem to be the major obstacle but in addition to recognizing and controlling misleading emotions, how does one recognize a wrong trade or a trade that might be incorrectly viewed as wrong?
  2. Start of list:
    • Were all the required signals present when I initiated a trade? If so, this could be a good sign to get out.
    • Am I tempted to quit because of one or several misleading emotions described in the Creating the Emotional Filter thread? If so, quitting wouldn’t be a good idea yet.
    • Is the current situation bringing new information? If so, does the new information outweigh or invalidate the information used at the beginning of the trade?
    • Price going in the opposite direction with increasing volume and open interest.
  3. Taking this down to the simplest level

    1. Has the pattern which initiatiated the trade failed.
    2. Has the trade broken support

    If the trade was supposed to break up and broke down, jump ship! With commissions as cheap as they are now, you can always re-enter the trade later.

    Sorry if I made this too simple.
  4. I've learned this myself..

    I could be so much more profitable if I could learn to bail on those trades that do not confirm to my original signal within the next bar or two

    3 out of 4 of my losing trades I could actually get out of with a 2 or 3 tick loss (Mini Russel) as opposed to getting stopped out if I could learn to take my emotions out of it and bail once the trade proves not to be correct.

    But I have a hard time doing that and usually hang on till I'm stopped out for a full point or more..
  5. Same here