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

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.

Oh… and of potential payout… but we'll look at that another time!  🙂

If a trade has "clear space" all the way from entry to the potential target area, then trade management is usually quite easy.

But that's not always the case, as we see in this example, where there the prior day's high forms a significant potential barrier to further movement, right in the way of our trade.

In these cases it can be wise to consider scaling out some partial profits, or even going completely flat, whenever you assess a greater probability of movement against your position. You can always look to get back in if price sets up for another push towards the level!

Happy trading,

Lance Beggs

 


 

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4 Comments to “Trade Management Requires a Constant Reassessment of Probability”

  1. Terminator says:

    Hi Master Lance,

    Please don’t take this as criticism. But I am just wondering, maybe you could have looked at these things to improve the trade:
    1) Volatility compression with ascending triangle
    2) Use inside bars as entry trigger (put in red dots in the chart)

    See annotated chart here:

    or here: http://i63.tinypic.com/2ahb85s.jpg

    I look forward to your comments and whether it makes sense or not…or is it just me falling for hindsight bias? 😉

    Thanks for the great post again!

    • Lance Beggs says:

      Thanks Terminator,

      Feedback is more than welcome; and not taken as criticism.

      I can’t see how this would have helped with the trade that I made, as the entry would be at the same location, as price breaks from the triangle structure.

      Unless you mean entering even earlier within the triangle structure for a completely different trade. Earlier entry… same targets. I suspect that is what you mean due to your reference to IB triggers.

      In that case, yes absolutely I agree it would have been a better outcome. The question is whether or not it was visible at the time of the triangle forming. And whether it provided enough confidence to enter long. I can’t imagine that anyone would trust the triangle in the early stages, for an entry around the 10:14 inside bar. It’s too early and clearly low probability given the failure to make higher highs (or even level highs). The 10:25 long… perhaps I could imagine someone taking that, as price did just recently test the highs again at 10:18.

      For me… it’s certainly obvious in hindsight. I didn’t see it that way live. I was aware of the compression towards the highs, but it didn’t compress well enough to give me confidence of a break till right at the end (as it occurred). All we can do is trade it how we see it.

      But yes… if you see a compression like that early, these sort of triggers are a great way to get in early, well before the eventual breakout.

      Nice work! 🙂

      Cheers,
      Lance.

  2. Terminator says:

    Hi Lance,

    Yeah that’s what I thought…it looks easier in hindsight. Thanks for your detailed thoughts. Some food for thought. I have been reading up a lot more on compression. Are there any trades where you took your entry based off that that I can read up on?

    Cheers.

    • Lance Beggs says:

      It’s not something I specifically look for. I’m not a pattern trader. But I do love it when I see this particular pattern alongside my methods of analysis. I have shared several trade examples with evidence of volatility compression through the YTC social media posts. There was one just two days ago. And if you look back through the previous posts you’ll find more. https://www.facebook.com/yourtradingcoach

      Look as well through the website. I don’t have any links I can recall off the top of my head, but if you use the search function for “volatility” or “contraction” or “compression” I imagine you’d find one or two posts.

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