Thursday, November 10, 2011

Fire and forget

One of the reasons traders overtrade is that their sense of market direction is focused on the small movements. A second reason is that they become distressed and doubt their own entries as soon as the market moves against them. They may often reverse their positions with every bar or every other bar.

The right thing to do is to make a note of the kind of setup and let the market take you out. If your trade fails, it will take you out by hitting your stop and if its successful, it will take you out by reaching your targets. This will give you an accurate measure of what kind of entries you have mastered and what you need to work on.

If you are a trader who focuses on swing entries only, you have the luxury of having a very small stop (of say -1.5 points on the ES). For example on today's chart, short below b1 required a 7t stop but entires on bars b4 (1PB), b17 (W), b47 (fBO) needed very small stops. These setups are usually the ones that run for a large number of points, so do not be upset if your stop is taken out; it means a larger stop would have probably been taken out in any case. 1Rev and 1PB may need larger stops, but -2 points usually suffice.

Most trading platforms support OCO orders where you can set stops and targets to cancel each other. Once you set an order forget about it and wait for the next setup. If the next setup is in the opposite direction to the position you are in, close out your position and enter a new order.

This way, you stop focusing on profit and loss and focus on bars instead.


  1. I got the 1PB today but I was wondering about B31,33,38. I saw this as a W and entered on B41.
    Setting aside the fact that this was profitable, was this technically a poor low % entry in your opinion? Should I have waited for a W1P? Did you even see that as a W?
    Thank you for this site. I am very grateful to you Cadaver.

  2. Dan, that was a WP and a very good entry. W1P is not applicable for WP. Your trade was very good. I would have taken it if b38 had a bull close.

  3. Cad,
    How did you handle the b8 and b51 pullbacks? They would have taken out breakeven stops. Is this a special case where you do not go to breakeven after a 5t close?
    Is so, when was the first time you went to breakeven?

  4. MG, my actual entry price was low of b3 and I missed being stopped out. On the short below b47, I allow a 1t pullback above the entry bar when the signal is an inside bar (I've posted about it before)

  5. Was b67 a W? And is the IB entry from b67 (above the OB66) still valid at b72 (failed L2 at b71). Does the entry order stays in place until it gets triggered or the L of b67 is being taken out.

  6. TD,

    If you are a with-trend trader who entered or correctly read b64 short as an A2, you would wait for two legs down and would not buy b67.

    But if you wanted to, the correct method of buying the W would be to buy above b67 and move the stop under b68, which would be stopped out at -2.5. You could later enter on the W1P.

    According to my trade management system described in this post, if you want to buy the W, you would buy above b67 and possibly be stopped out at -6t and re-enter above W1P b71.

  7. Hi Cad, I hope this is not obtrusive :-)
    I thought the correct trade for an inside bar is to trade the containing outside bar? So the short was below b63 and the long above b66 (both not triggered on the next bar) or do these two IBs qualify as large?

    You once wrote: "Inside bar entries are always under the outside bar, except when the inside bar is large or if the inside bar is shaved on the entry side AND at one end of the outside bar "

  8. TD, according to the Brooks book, the proper entry for an inside bar is the breakout of the outside bar and the stop is also beyond the outside bar.

    When the outside bar is small, this is very applicable. When the outside bar is large, the risk becomes unacceptable. Also, my goal of minimizing risk to -6t would preclude any such trades.

    My optimization is to trade strongly closed inside bars with minimal overlap on the breakout of the inside bar and allow a pullback of at most one tick beyond the entry bar after it closes.