Unless you're trading only one contract, I don't understand why you're so focused on exits and reversals.
Please elaborate. This makes absolutely no sense. What does 1 contract have to do with it? You can reverse any trade, even 100 contracts. The reason I'm so focused on exits is because from my experience exit strategy separates the winning traders from the losers.
If you're trading 100 contracts as though they were one, then you're correct. But why would you? If, for example, you're trading two, you can exit one when a trendline is broken or a target is reached or a trailing stop is reached or whatever, then leave the other at breakeven until a more significant reversal takes place or until the end of the day or . . . If you're not scaling in and/or out at all and you're trying to make the most out of every single contract, then you're going to drive yourself crazy with trying to find the "best" stop and the "best" exit and the "best" reversal signal. Trading multiple contracts provides you with the opportunity to plan for multiple contingencies. Taking advantage of that opportunity will more likely lead to the profits you want.
This seems true in theory, but in practice scaling in and out isn't any less stressful than going in and out completely. The problem lies in how you are going to scale. Suppose you are trading 10 contracts and you receive a signal that would cause you to want to exit some of them. Now what weight are you going to assign to the signal? Will you exit 2, 5, or maybe even 7 of your contracts depending on your confidence in the signal? If so, why do you assume that your confidence in a signal determines the result of the trade? Because more often than not it doesn't. Then if you save yourself on part of your position, don't you regret not saving everything? I can see where scaling in and out would be necessary if you were trading much larger size due to liquidity issues, but I see no reason to burden myself with any unneccessary trades. I'm not saying that this won't work for some people, but if I'm willing to give up even 1 contract, there's enough doubt so that I should just go flat. Also, do you scale out of losing positions as well? What happens if you need to scale more than once? I think that with all of this scaling, a person tends to lose focus of the actual trading. Also, scaling can create dangerous contradictions in a person's psyche that can create uncertainty and ultimately lead to counterproductive results. Maybe it works for you, but scaling isn't for me. I would rather accept any possible negative financial consequences from not scaling as opposed to accepting the negative psychological consequences from scaling, but that's just me. I'll worry about scaling if my size ever becomes too large for my current method, which probably won't be anytime soon. I didn't mean to start a debate with this, nor will I participate in one if it develops. But it seems like this question has been addressed several times now, and I just wanted to clarify my opinion on the subject. Feel free to add your comments, but please don't turn this into a debate.
Another possible strategy would be to take the short term signals in the theory that the short term signals will eventually lead to the long term result anyway. This seems like a viable option, but is more than likely beyond my current skill set.
Wait a minute, this is pretty much the heart of my system. I know that since I've started this journal, I've been sacrificing short term results for long term progress. For the past two weeks I've been in a period of intense introspection which I think has been productive and will ultimately serve to make me a better trader. Numerous issues have been addressed, but I think that the heart of the problem has only just been touched. When I really think about it, every problem I've had seems to boil down to my system. I think that during the two weeks that I departed from my system I lost touch with how it actually worked. Now that I've been trying to return to my system, I've got all the pieces but have had trouble figuring out how they go back together. It seems so obvious now, but that just goes to show how much a drawdown (especially one that involves straying from the system) can negatively impact a trader's ability to reason. There's more to the system than this above quote, but this is serving as the epiphany moment that solves the problem I've been having with my signals. Since I've started the journal, it feels like I haven't even done a single trade. I think that most of my fear and inactivity has been a subconscious result of me not knowing what to do with my systems signals, or more accurately trying to fix a system that wasn't broken and not knowing how to do it. I think that the natural tendency after a drawdown is to blame the system, but it couldn't have been the system since I wasn't even using it. Subsequently, I've been focusing on improvements when I should have been focusing on implementation. I feel stupid, but I guess it's better to feel stupid now than to continue to act stupidly. Hopefully, this will be a turning point.
Whatever regret or doubt you may feel is a separate issue. If you prefer the all-or-nothing approach, that's your choice. But it is a choice, not a necessary outcome as would be the case trading one contract.
Something very interesting happened this afternoon. The tape was pointing higher than 1260 NDX but it seemed like something was fighting it all the way. It didn't feel like resistance though. It just seemed like there was a battle going on and I couldn't justify active participation. Trade 1 (SLD 1260 BOT 1259) I was looking for a pullback to around 1255 NDX, and I thought the trade was good for at least 1258. I ignored my entry at 1262 and then said "let's not start this again," so I got in at 1260. Of course the market immediately reversed, but I kept my cool. I was treating the trade as if I had entered at 1262 for psychological trade management reasons. Therefore my stop was at 1264 and it made it to 63.5X64 but there was no volume at 1264 so I was OK. When it came back to 1260.5 I decided to just get out if it went back to 1262 but it didn't. Even though I was extremely confident about 1258, I decided to just get out at 1259 because I started to get nervous about my entry point. Even though I messed up on my exit, this was a good trade because I was able to keep my cool in a bad situation. Trade 2 (BOT 1260 SLD 1260.5) I decided not to participate in the craziness surrounding the Eiffel tower scare. However, I was still feeling that once the market got that news item out of its system that the market would continue on upwards. The problem with this trade was that I didn't even wait for an entry this time, so instead of getting in late I got in early. I was looking for an entry of 1258 but didn't have the patience to wait for it. Subsequently, the market did go to 1258 after my entry, but again I treated the trade as if I had entered at 1258 for risk evaluation purposes. The important thing to clarify on this trade is that I did not just try to get out at breakeven or a profit. I was just waiting for the first sign of resistance, which occurred at 61X61.5. The proximity of this resistance to my entry led me to immediately get out at 1260.5. It is just a coincidence that this happened to represent the minimum profit level. Trade 3 (BOT 1260 SLD 1262) I was looking for 1264, but this was where I really noticed the fighting that I mentioned earlier. Overall, I executed this trade well especially in regards to having a patiently timed entry point. However, it was no longer justifiable to participate when I felt like I was battling the market, so I decided to take a break until 3:00 EST. Trade 4 (BOT 1260 SLD 1262.5) I was looking for an end of day break out, because even after my break it seemed like the market was still at war with itself. I got out a little too early, because I really don't like initiating trades after 3:30 EST. One interesting coincidence is that Trades 3 and 4 both lasted exactly 21 seconds. Also, I'm not sure if the battling of the tape I was referring to was actually happening or whether it was a battle within myself. I was probably just at war with myself. However, I did manage to accomplish my goal for the day, which was to simply trade instead of analyzing so much. This was an accomplishment because I had to break out of the box I've been in lately.
I mentioned being able to keep my cool much better than usual. One thing I attribute this to is taking that stupid P&L thing off my screen. I never really paid much attention to it anyway, but on July 18 I caught myself looking at it at critical times. This is one of the major reasons I missed that pull back from 1261 to 1258, I was too busy counting my profits. So yesterday I decided to figure out how to remove it from the screen, which was pretty easy actually. I can't see any reason for wanting it back either. I think that this will help alleviate, if not solve, several common negative psychological responses.
I am really disappointed with myself today. I saw that the tape was pointing higher. Believe it or not, I was convinced that the force that had been trying to hold the market down yesterday afternoon had been lifted, and that the NDX was headed for 1270. I saw an entry at 1256.5 at approximately 1:40 EST, but I missed it. I'm not upset for myself with not taking that signal. What upsets me is that after missing this trade, I developed a sore loser attitude. What I mean by this is that instead of looking for another entry on a trade that I believed still had plenty of upside, I began to look for a short opportunity. Even though I saw another entry at 1262 at approximately 2:00 EST, I ignored it because I was now focused on going short. My childish attitude was that if I wasn't going to make money on the long side, I didn't want anyone else to either. Trade 1 (SLD 1267.5 BOT 1268.5) There was no entry signal for this trade. I just figured that it was time to implement my foolish plan. I realized immediately that I had made a huge mistake. The market went to 69X69.5 before coming back to my entry point of 67X67.5. Why I was still trying to make a profit on a trade that was obviously wrong, I have no idea. Anyway, I did have enough sense to get out at 1268.5. Trade 2 (SLD 1268.5 BOT 1267) This is the trade that disappoints me the most. Only one minute after getting out of a trade that I had deemed a terrible idea, I decided to get back in. My irrational rationale was that I was going to try to make Trade 1 profitable. I can't believe the total lack of discipline I exhibited on this trade. Anyway, the market gapped up about 2 points, which was like throwing a bucket of cold water in my face. I finally came to my senses. I was able to keep my cool and saw that the market was forming a short term top. When I received a sell signal at 1271.5, I decided to hold on until the first sign of resistance to the downside. For psychological trade management reasons, I probably should have exited and then re-entered at 1271.5, but it didn't occur to me at the time. If I remember correctly it made it to 68X68.5 and then instantly reversed up. I wasn't about to let this trade get any worse, so I was prepared to exit at 1272.5, but thankfully it was just a double top. From this point I decided to get out at the first sign of support or 1267, whichever came first. Needless to say, I was glad to be out of this mess and thinking clearly again. I decided to take a 15 minute break to get my composure back together. Trade 3 (SLD 1267.5 BOT 1265.5) I received a short signal at 1269. However, I was still extremely leery of going short after the mess I had gotten myself into earlier. After market action confirmed the signal, I entered at 1267.5 looking for 1265 NDX. Unfortunately, my late entry proved to be at the worst possible point since the market went back to 69X69.5. I seriously considered getting out at 1269.5, but the trade still looked sound and I managed to keep my cool. At 65X65.5, I received a reversal signal. I sent an order to get out at 1265.5 but by that time it was at 65.5X66. I left my order in, but I was prepared to exit at 1266 with an OCA order. I didn't reverse, because I wanted to let market action confirm the reversal signal first. Trade 4 (BOT 1267.5 SLD 1268.5) I couldn't manage to pull the trigger at 1266.5, even though I was convinced the market was headed back to 1270 NDX. Finally at 1267.5 I entered but as I did I realized my timing was poor, and my entry was likely to be retested. I immediately sent an order for 1268.5 since it was at 68X68.5 at the time, but I was prepared to exit at 1268 with an OCA order. Since it was nearing 3:30 EST and also because my trading for today was less than stellar, I decided not to try for a re-entry on this trade. I'm still really disappointed in myself regarding today's poor performance and lack of discipline on Trades 1 and especially 2. However, I do feel that I was able to maintain and then regain control of the situation when things were at their worst. After taking a break, I was able to come back with a refreshed outlook, and had already let the other stuff go. I'm really glad that the P&L indicator was off the screen when things started to spiral out of control, because I'm pretty sure that would have caused me to panic instead of concentrating on the situation at hand.