I thought it would be good to expand upon some of the ideas discussed on YTC social media last weekend.
Here are the three social media posts first…
There are two main points that I'd like to examine in a little more detail.
- Immediate Actions
- Working an Exit
So let's say you've traded the sequence above, and just recognised the entry error. What are your actions?
The obvious advice is to scratch immediately. It's what most educators will suggest. And often it is good advice. Immediately take responsibility for the error and take your loss.
I won't ever have a problem with someone who does this.
Especially in the following cases:
- Your trading session is in drawdown and has reached your daily loss limit. You're clearly not in sync with the market today. Take the loss. And get away from the screen for a while.
- Your mindset is already a mess. You're frustrated! You're angry! Whatever the reason, take the loss. And get away from the screen for a while.
For these occurrences, immediately scratching is likely the best option. Take the loss. And review the whole session at a later time (or even the next day) when it can be looked at with an objective and clear mind.
But in all other cases, I think we can improve on this.
Here's the thing… there is often no need to panic.
You will often have sufficient time to make a quick assessment and determine whether or not the position is an immediate threat… or not.
That is… does the current situation have a high probability of rapidly getting worse? Or is it maybe not so bad? Can you maybe even recover the situation?
Let's change the context a little. We'll start with some very simple examples.