Too many times a trader will let one trade go by and of course that was profitable, then they let the next one go by with same result, then they grew some courage and take this third trade which is a loser. If it is deep in same trend especially if near the day session ten day average range, chance it will be a loser. Just based on simple probability, 12.5% chance of winning 3rd trade in a row, unless of course method seldom has loses. I took hypnosis many years ago and still go twice a year, helps now with relaxing and stay focused.
Traders who haven't learned to recognize what their setups look like at the hard right edge, or who haven't learned to completely trust their trading plan, can easily hesitate to trade good setups because they look very different than they do on a static chart at the end of the day when you can see what happened next. I'll provide an example of a valid setup that fits my criteria, but looks very ugly at the time and invites a lot thinking while trading. Here is a with-trend pull-back long setup: My setup criteria: Price is in a well-defined up trend. Price is trading above the 20-bar EMA. Price dipped below the 20 EMA and closed above it. The previous trending move off the first higher low was really strong. Here are my two main entry methods: Place a limit order just below the low of the bar that dipped below and closed above the 20 EMA. Place a stop just below the "previous resistance becomes support" level. Buy a break of the bar's high via a buy stop order. Place a stop just below the "previous resistance becomes support" level. The profit target on this trade is in the 100.10 zone because the breakout of the last high resulted in a move of around .30 higher and so this breakout should take price to approximately .30 above that heavy 99.80 resistance zone. My rule is to either set a hard target of the expected price minus .03 to ensure a fill, or if there's a lot airspace to a key level beyond my target zone, to wait for target, then trail a stop if the market is offering more. In this trade setup, there is a previous support zone that will likely hold as resistance at least for a while and that's near the round number 100.00. I decide the hard target .03 below the expected target level is a sound choice, giving me a hard target of 100.07. ******* Here are the thoughts that are likely to get in the way of just putting on the trade at the hard right edge using my trading plan: Look at that nasty shooting star candle when price tried to break through the last high @ 99.82. Then it failed to retest that high after pulling back pretty close to the 20 EMA. It looks a lot more like a short now. I know this is most likely a common 2-leg pullback to the 20 EMA, and price will bounce off that zone, but this really looks ugly. It sold off a lot the day before and there was serious resistance at that same 99.80 level when it tried to bounce off the lows of that sell off. I should short a break of the low of that bar because that would be breaking back through the 20 EMA. I know there's previous resistance just below that level and it should hold as support, but this looks really weak now. ******* Here is a common scenario that can play out as a result of the apparent "ugliness" of a defined with-trend pullback entry: I decide to buy 99.69, break of the bar's high because that's more "confirmed" by the price action. I don't like having such a wide stop of .20 or more, so I decide to place my stop closer @ 99.57 just below the bar's low. (Rule violation: If the stop's too wide, use the 1-min chart for a second mouse entry after the initial bar break.) So I violated one of my rules because I'm afraid I'll miss a move. I'm triggered long at the high tick as price immediately starts dropping and then hits my stop. "I knew it was a short, what an idiot!" In the heat of the moment I totally forget that previous R is right there, I put on a short and price stops cold at my entry and starts back up. "Sh*t! I hope I didn't short the low tick! Here it comes back to the previous bar's high. OK, I should double my stop there and switch long if that breaks out." "But then I'll probably just get trapped again. This is a short, what am I thinking? I should move my stop farther away. I'm not gonna be the fool and get whipsawed again by this market. I'm moving my stop above that shooting star, no way price will break through that resistance." And now my previous .16 stop is moved to .31, way beyond my max loss per trade. The larger stop is hit with serious slippage because that's a major resistance level where everyone's stops are. "Why didn't I switch to a long at my initial stop? Why didn't I just use the proper stop on my first entry, or wait and follow my rules??? Man this sucks, I'm down over $600. That's it, I'm done for the day." If I'd simply bought one tick below that bar's low with the .10 stop at a proper level, or if I'd waited for the initial bar break upside and then bought on the dip back to the breakout level, I'd be sitting in my trade waiting for what happens next.
And here's what happens next: I had two ways to trade the setup and I had rules for each method. I hesitated to put on the trade using the small stop, then I violated my rules by putting on the trade with a non-survivable stop, then I got caught up in emotional crap that prevented me from seeing the initial big picture. I'm down $600 when I should be up between $400 and $500 on the trade. This has happened to me many times as a developing trader. This is how a strong edge can be ruined by inability to follow a plan.
Good post NoDoji. When you have two support zones next to each other like in this case 20 EMA and Prev R as S, one technique I like to do is, place a limit inbetween the two and stop below the lowest S. You do miss trades with this technique if it does not pierce. My 2 cents. Buster