Tag Archives: Trade Management

Trade Review – Should He Have Exited?

 

I received a question from a reader who made an exceptional trade but was concerned that he should have exited the trade much earlier, scratching for a small loss and then possibly seeking re-entry.

I love this!

I would typically expect most traders to be ecstatic about a win.

But it's a sign of someone much more advanced along the journey, who is more concerned about developing good process than in just celebrating the win.

Here is the trade, along with their question. I've had to shrink the image a bit to fit here.

I'll discuss the question below so it's not essential to be able to read the text. But if you are interested, click on the image and it will open a full-size copy in your browser.

The trade... and question...

The Trading Timeframe is the 5 minute chart, shown in the small insert to the upper left. The main part of the image shows the 1 minute Lower Timeframe.

But let's take a look through my charts, starting with the 60 minute timeframe for some wider context and then stepping down through both the 5 and 1 minute charts.

Higher Timeframe

Trading Timeframe

Lower Timeframe

Awesome!

I love it. That is a very nice BPB trade.

But here's the question, courtesy of the trader who we'll just call M.I.

The question...

M.I. is correct in his understanding of my style of trading. Over the years I've developed a preference for active management of my positions, in particular around the entry point. My preference is to not just hold and HOPE. But rather to be taking off risk if I feel the position is threatened. And re-entering if the trade premise does remain intact.

It's always impossible to say exactly how I would have traded something live, when I wasn't actually there to experience the price action. Hindsight knowledge of the outcome DOES alter the way we believe we would have traded.

So taking this with a grain of salt, here is what I "believe" I would have done:

My entry and active management style

Here is the thing though – IT DOESN'T MATTER.

There is no right or wrong method of trade management.

Either way is fine – completely passive set and forget, or quite active like I prefer. Or in fact anything in-between.

What is important is finding and developing your own style and then using that consistently.

Sometimes passive management will have outperformed. Quite likely in this case, M.I.'s management method would have resulted in greater profits than mine. At other times though, active management will be far more profitable (such as here).

Find what fits your personality. And just be consistent.

Here is the IMPORTANT THING TO REMEMBER, regardless of which style you choose:

Know where the trade is invalid

We both have the same area at which we deem the trade invalid.

A passive style.

An active style.

Either way is fine. Find what best fits your personality and just be consistent. Active, passive, or any blend in-between.

Your style will likely develop over time, regardless of which you start with. Track your results. And work to improve.

Even better, if you can afford the time, track both methods and compare the results over time.

Most likely though, personality will play a greater part in the ultimate style, rather than which offers the greater profitability.

A little tip though, if you're unsure where to start. Look at the worst case for each scenario and see which offers the maximum regret. Then avoid that option.

Passive management – the worst case scenario is when the trade does fail and you could clearly see that it had lost it's edge, having tons of time to scratch the trade for a small profit or small loss, but instead hold the trade for a full-size loss just because someone told you "that's how you're meant to do it!".

Active management – the worst case scenario is when the trade idea works, but you've scratched the position for a small profit or small loss, and then can't find any way back in, watching the market move to your original targets without you.

Visualise placing a trade. And then work through both scenarios. Which feels the worst? Now, avoid that method and start with the other.

For me, I'm quite comfortable missing a trade. I'm happy to let it go. It wasn't mine to catch. And I'll just move on to the next.

But holding a position for a loss, when I could see it coming well ahead of time. That's just stupid (IMHO).

I choose active trade management.

But it's not the only way. And it's not necessarily the right option for you.

M.I., you chose a passive style of management for this trade. And it was a GREAT TRADE. Perhaps that is the style that suits your personality the most at this stage of your development? If so, don't worry about how I would have traded the position. Take notes on your trade. Keep your stats. And continue to monitor and grow over time, allowing your trade management style to naturally evolve over time.

That was a great trade. Well done. Keep it up.   🙂

Happy trading,

Lance Beggs

 


 

Wrong Wrong Wrong Right

 

This was an interesting sequence of trades – three which I got completely wrong, followed by one which I finally got right.

The key takeaways:

  1. You won’t always get it right. Sometimes your timing is out. Other times, like in this sequence, your assessment of bias is just wrong.
  2. Good entry location and good active trade management can ensure that even when you get it wrong, you still don’t lose much. Or, as in this sequence, you don’t lose anything.
  3. One right trade can more than make up for numerous wrong trades.
  4. Profits come from a series of trades. Not from individual trades. In this business, individual trade results are irrelevant (assuming they do not break your money and risk management limits).

 

Market open

The plan

Wrong

Note importantly on the Trading Timeframe that the entry was very much near the low. There was absolutely NO waiting for confirmation of price moving higher. Instead, entry was taken when price showed it could not move lower.

Note also how active trade management allowed the trade to profit, with half taken off at the first target area and the remainder scratched for a smaller loss once it was clear this trade was wrong.

Good decision making with regards to entry and trade management ensured that I did not lose here, despite being wrong about the direction of the market.

Let's try again

Wrong

Again…

Note importantly on the Trading Timeframe that the entry was very much near the low. There was absolutely NO waiting for confirmation of price moving higher. Instead, entry was taken when price showed it could not move lower.

Note also how active trade management allowed the trade to profit, with some risk taken off when I wasn’t happy with the post-entry stall. This turned out premature, but it’s a good decision. Price should have moved quicker. Of the remainder of the position, half is taken off at the next stall area and the remainder scratched for a smaller loss once it was clear this trade was wrong.

Good decision making with regards to entry and trade management ensured that I did not lose here, despite being wrong about the direction of the market.

One more time... cause it's working so well so far!!!

Wrong

Yes, the temptation to not show bad trading is GREAT. But sometimes there are good lessons.

Once more for effect…

Note importantly on the Trading Timeframe that the entry was very much near the low. There was absolutely NO waiting for confirmation of price moving higher. Instead, entry was taken when price showed it could not move lower.

Note also how active trade management allowed the trade to profit, with some risk taken off early (in the area of the prior pullback lows) and the remainder scratched for a smaller loss once it was clear this trade was wrong.

Good decision making with regards to entry and trade management ensured that I did not lose here, despite being wrong about the direction of the market.

A better plan

Right

Repeating the key takeaways:

  1. You won’t always get it right. Sometimes your timing is out. Other times, like in this sequence, your assessment of bias is just wrong.
  2. Good entry location and good active trade management can ensure that even when you get it wrong, you still don’t lose much. Or, as in this sequence, you don’t lose anything.
  3. One right trade can more than make up for numerous wrong trades.
  4. Profits come from a series of trades. Not from individual trades. In this business, individual trade results are irrelevant (assuming they do not break your money and risk management limits).

 

Happy trading,

Lance Beggs

 


 

The Key to Effective Active Trade Management

 

Here was the general plan:

The key to effective Active Trade Management

The key to effective Active Trade Management

The key to effective Active Trade Management

The key to effective Active Trade Management

I won't go into detail regarding the wider market environment and context within which the trade occurred. It's not the point of the article.

Truth be told – it was a marginal trade at best.

Ideally such a trade would be taken in a market with a strong bearish conviction.

But that wasn't the case.

The environment was poor. There was no clear trend structure in place. And the bias was uncertain, with price showing no clear dominant strength with either bulls or bears.

But I was aware of this. I was in "trade cautiously" mode. Standing aside mostly. With a plan that if I did take a trade it was to be with a smaller position size. This would continue until there was a clear trend structure and some good directional conviction.

We could argue back and forth all day as to whether or not the trade idea had edge. I will accept it was marginal.

But I took the trade.

And it contains a good lesson on active trade management.

So we will discuss it today.

Here are the charts just prior to my entry:

The key to effective Active Trade Management

Here's the entry:

The key to effective Active Trade Management

Here is what I'd like to see happen:

The key to effective Active Trade Management

But what we want to happen, doesn't always happen.

And that brings us to today's lesson:

The key to effective Active Trade Management is knowing what SHOULD NOT happen.

There are two outcomes that SHOULD NOT happen, if my trade premise is still valid.

(1) Price will immediately smash higher and stop me out. Should that happen, I'll just take the loss. It's unlikely that I will have the opportunity to work a better exit.

(2) Price will stall towards the upper edge of the congestion area and then break higher.

The key to effective Active Trade Management

Here's the outcome:

The key to effective Active Trade Management

The key to effective Active Trade Management

The key to effective Active Trade Management is knowing what SHOULD NOT happen.

Then recognising it.

And acting to contain any damage.

If your edge is gone, GET OUT.

Happy trading,

Lance Beggs

 


 

A BOF Trade with Many YTC Concepts

 

Let's look over a trade I particularly like, from earlier this week.

It's nothing special in terms of returns. But it took an otherwise dull session from breakeven into profits.

And it displays many of the concepts that we have discussed here in the newsletter over the last few years.

So I particularly like this one. And I thought it's a good one to share to reinforce some of these key lessons.

The trade is a Breakout Failure trade following price interaction with the Prior Day's High resistance.

Breakout Failure Review 

Let's see what I liked about this trade…

Breakout Failure Review

Breakout Failure Review

Breakout Failure Review

Breakout Failure Review

Breakout Failure Review

Breakout Failure Review 

Let's see the outcome…

Breakout Failure Review

Breakout Failure Review 

Happy trading,

Lance Beggs

 


 

If you find yourself out of your trade, the reality is that you won’t always find a way back in!

 

Hindsight analysis is always suspect. Our normal human biases have us believing that we would have made the optimal trade decisions. After all, they always look so simple with the benefit of hindsight.

So I'm always hesitant to provide my thoughts on someone else's trade review.

But it's the Christmas / New Year week and I'm feeling too lazy to think up a new article, so sharing some email Q&A solves that problem for me.

And it provides a good lesson – if you find yourself out of a trade, for whatever reason, the reality is that you won't always find a way back in.

If you've scratched a trade to reassess and decide that there is still potential, unless you're just willing to enter at market then and there, or place a limit order at some point closer to the stop area, you might not find a way to re-enter. Pattern triggers may not eventuate.

And that's fine. Review the decision that led to the initial scratching. And move on.

I scratch trades a lot. If I doubt a trade, I'll reduce risk through either a partial or full exit, and then reassess. If I'm happy with the premise, I'll look to get back in. But sometimes… there is no good way to get back in.

In developing as a trader and discovering whether you better fit the passive set and forget trade management style, or a more active style such as I use, this is a factor that you need to consider. If you find yourself out of your trade, the reality is that you won't always find a way back in.

Anyway, here's the Q&A from a trader who recently asked me to review one of their EUR/USD trades, in which they took profits early but then were unable to get back in.

The question was sent to me in image chart form. It's displayed here in smaller format, in order to fit. If you click on the image it will open a full-size version in your browser. All following images are already full size.

INITIAL QUESTION:

You won't always find a way back in

 

REPLY:

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in

You won't always find a way back in 

Happy trading,

Lance Beggs

 


 

Order Entry Error – Immediate Actions & Working an Exit

 

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…

26th March:

Order Entry Error - Immediate Actions - Post 1

27th March:

Order Entry Error - Immediate Actions - Post 2

28th March:

Order Entry Error - Immediate Actions - Post 3

There are two main points that I'd like to examine in a little more detail.

  1. Immediate Actions
  2. Working an Exit

 

Immediate Actions

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.

(more…)

Trade Management Requires a Constant Reassessment of Probability

 

The path from entry to profit target is rarely a straight line. Especially when market structure gets in the way.

In today's example we have an area of resistance, right in the way of our trade. Given the potential for some reaction off this area of resistance, we have two options. We could hold a much wider stop and accept the potential for trade failure back at breakeven. Or we could accept a need to scale in and out in accordance with our assessment of short-term bias.

There's no right or wrong. It's rather just a matter of choosing the style that best matches "who you are as a trader!"

For me, the second option is clearly my preference.

The key, for those of you interested in actively managing trades like this, is to maintain a constant reassessment of probability throughout the life of the trade.

Trade management requires a constant reassessment of probability throughout the life of the trade

Trade management requires a constant reassessment of probability throughout the life of the trade

Trade management requires a constant reassessment of probability throughout the life of the trade

Trade management requires a constant reassessment of probability throughout the life of the trade

Trade management requires a constant reassessment of probability throughout the life of the trade

(more…)

You’ve GOT to Target Multiple-R Winners

 

Most trades will typically fall in the range from -1R to +1R… hopefully more on the positive side of that range.

But for most of us this does not mean you should be targeting 1:1 trades all day, every day.

By all means take them if you assess them as being a higher probability play. But you'll need to maintain a 70% or more win-rate if you want to achieve any decent long-term profits with ONLY 1:1 trades.

That's a tough ask!

It's far better, in my opinion, to aim to break up that stream of -1R to +1R trades with the occasional large multiple-R profit.

When market structure and price action suggest the potential for a multiple-R trade, target those higher returns.

 

You've got to target multiple-R winners

You've got to target multiple-R winners

You've got to target multiple-R winners

 

So the obvious question is, "When should we be more patient with a trade and hold it for a larger runner?"

There is a recent amendment to my pre-session routine which can help answer this question.

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Context Can Also Involve Time… Not Just Price

 

or… Why I held this trade drawdown longer than I usually would!

On Monday I entered a PB short in expectation of a downtrend continuing lower.

Context can also involve time - the entry

By far the best entry area would occur on a weak pullback to the shaded region (A).

And the last Trading-Timeframe (TTF) green candle certainly makes it seem like that's a possibility.

But the Lower Timeframe (LTF) stalled and offered a double top entry at short-term resistance, so I entered a position as I didn't want to miss the chance of strong continuation lower (B).

The plan was for an immediate reduction of risk should price break the short-term ledge (C) with a stop for the remainder a few ticks higher. I'd then seek another entry opportunity higher in the vicinity of A.

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