Let’s see if I can create a mindset shift in some of you, in the way that you view your trade entry decisions.
This discussion comes about due to a question I received after last week’s article:
Can we talk about your first trade? In the third image you said you took a small entry to test how it felt. What do you mean by this?
This was the image and the trade markers for the first trade:
So what do I mean by this?
My initial expectations, as discussed last week, were for a strong bullish momentum drive.
The opening candle raised some doubts about that assessment.
The initial projection is in doubt. Let’s let the next candle play out and reassess.
My initial projection is likely wrong. So, as we learnt with bar-by-bar analysis, we adjust.
This assessment was not held with massive confidence. It’s simply what I assessed as most likely at this stage. And I’ll be quick to drop that view if further price action contradicts it.
Quite happily too. This kind of slow, grinding, massive-overlap trend is far from my favourite environment.
Maybe with hindsight the best decision would have been to stand aside and let more structure develop. Let the market resolve this opening battle. And then rejoin the game when there is structure and conditions more to my liking.
But hindsight-best decisions don’t always happen in real-time.
So when the pullback held it’s level, this is what I decided.
1. It’s a small position. A full stop out is less than the usual 1R risk.
2. It lets me feel the sentiment within the market. As much as I talk about learning to feel the buy/sell pressure through immersing yourself in the bar-by-bar action, the fact is that you can feel this FAR MORE effectively when you have some open position risk.
3. And it’s just a test of sentiment. If I like the feel of the market, I can add to the position. But if I don’t like it, I can scratch the trade well before the stop loss. A trade entry is not a locked-in-stone permanent decision. You can back out of that decision at any time.
It’s this last point that I want to really highlight in this article. It’s a mindset shift that I think can benefit all traders.
Trade entry is a two-way door. If you step through it and don’t like what you see, you can turn around and go right back where you came from.
If you enter a trade and subsequently assess that there is no longer any edge (perhaps you were wrong, or perhaps the conditions have changed), then you can get out. No-one is forcing you to hold the position till the stop is hit.
My thanks to Jeff Haden and Inc.com for the two-way door analogy, which I “borrowed” from this excellent article – https://www.inc.com/jeff-haden/why-emotionally-intelligent-people-embrace-2-way-doors-rule-to-make-better-faster-decisions.html
I highly recommend reading this article. Especially if you find yourself to be someone who hesitates at trade entry. Is it possible you’re placing too much importance on getting the entry right? And seeing it more as a one-way door, rather than a two-way door which allows quick correction of your entry decision?
I’m reminded also of this social media post from back in February and then again early last month, which shares the exact same sentiment:
Repeated in bold font for maximum effect and burning into your brain…
A decision made quickly with permission to correct and amend that decision, is often superior to hesitation and delay until you’re sure you got it right.
I don’t put on a test position often. I do often wonder though if I should explore this as a future evolution of my own trading.
But the two-way door concept is a key part of my active trade management plan.
Consider whether or not it might have some place in your own trading. As always though, test and confirm before deploying with live capital.
Lance if someone is using MTF Analysis. Scalling in or scalling out is better. Have you ever thought of going to upper timeframes and scale in 15 sec or 1 min pullback.
I have no need to change how I’m trading.