Wednesday, March 14, 2012

Getting shaken out IV - Recent losing trade

A recent loss shakes your confidence in your next trade often without you noticing it. For example, suppose you shorted b9 and were stopped out on the next bar at b10 high. Another setup bar forms at b11 right away and you re-enter. Chances are high that anything other than bear trend bars will force you to exit early. So when b16 is forming and looks like a bull bar near its high, you may decide to exit on the next tick above and get out exactly where stronger traders add more to their short position.

Its likely that if you did not have a recent loss, the pullback wouldn't bother you that much. Its important to know how wins and losses impact you and to learn not to be overconfident after wins or scared after losses. One way around this is to let some time pass after a losing trade. If you choose to wait for two swings (b10h and b15 l) and only take an entry after that, you may possibly read the fH1 at b16 correctly and hold longer.

If you are a trader who often or even occasionally experiences a series of losses every few bars, you need to follow the two swing wait rule after exiting any trade regardless of whether its a win or loss.


  1. Thanks for your exceptional writing on the most difficult challenge in trading: oneself.

    Spoken by a fantastic paper-trader that fades on the dance floor when the real music begins.

    Will try the two-swing rule next time paralysis arrives after a loss.

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