If you dont have day trading rules, you will lose

If you dont have day trading rules, you will lose

Expecting a miracle if you are losing in a trade?? Well it won’t happen. This is intended to help traders get out of a losing position by trading, not as an excuse to ignore stop losses. Ignoring stops is the surest way in the world to take all the money in your account and just flush it down the toilet. I am serious. While that might help you in the short run eventually there is a 100% chance you will have a massive loss, like 50% or more on your money lost that is invested in the trade if you don’t use a stop. So the thinking is “They are not gonna get me this time”. This is how traders learn to trade with bad habits.

The first thing to realize, there are 4 reasons losses that can happen when you are in a day trading or swing trading.

1. Timing is just not right on the entry price
2. You are dead wrong on the direction
News items come out and move stock or index against you
4. Your price target to exit is too far away

We will address these one by one.

1. Timing is just not right on the entry price

If your entry timing is off, this usualy means the price will move a bit in your favor, then against you within the first 5 to 10 minutes. The amount the price moves against you will be way more than any profit so far, but it does not go to the stop area either. The key to identifying this is the stock will hesitate up and down, just below your entry for long or above entry for short. It should not make a beeline against you and it should not go right near your stop in the first few minutes.

The best way to deal with this type of trade is to assume most of the time you trade you are going to be off. Enter long or short only one half to two-thirds the actual size you want in a position where you think the timing is right. Most trades will not just run immediate, including breakouts. Once filled, put an initial stop in for that position. Wait 5 minutes and see what the stock does. If it runs in your favor immediately, well then your timing was perfect – trade what you have OR look for the remainder on a small dip.

If the stock moves against you more than for you in the first 5 minutes, but is not a beeline against you (meaning it looks like the trade will stop out etc), then put in an order to add at the low of this 5 minutes (for long) or the high (for shorts). If you get your better price add, cancel the press bets add. If you get the press bets add, move your initial stop up to just below that low of the 5 minutes, and make sure you increase the shares.

This often happens to even the most seasoned traders. No matter what you try it fails, breakouts, reversasl, or trend following – common theme is you are just dead wrong. By this I mean the upside is severely limited (for longs) or downside limited (for shorts). This means it can move easily one direction, but really, really struggles in the direction you bet.

You are looking to risk another 15c to 20c on double size, betting it will turn in your favor before you stop out. If you want to attempt this, care must be taken to use discipline. Do not try to force making money on the trade. The goal is to minimize the loss by trying to catch a turn near your stop area. Just move on to the next trade.

If you doubled down and actually caught the turn, you would want to move the stop up on all to just below the turn. When the price moves halfway back from your secondary add position to the price of your first entry, sell the additional shares so you are left with only your original position. Because you added shares and made some back, if you get stopped now you will lose far less than if you did not add. It is your call to decide if that is the best thing or to just exit all of the position with a minor loss and move on.

3. News items come out and move stock or index against you

This is a tough one. The call is would this type of news cause the stock price to go far enough to hit the stop level? If the answer is probably yes, exiting at market before the stop will save you money. If you think that the news that came out will not stop your position, then the best plan is to exit on a small counter move the other way. Most of the time there is no good way to get additional shares if you get caught on the wrong side of a news play. Occasionally the price might react in way A, but after a bit of time that side realizes they are wrong, and they flip around and want out, moving the market in direction B. If you can uncover and notice that this will probably happen, the add point is the high of the bar where the news came out.

4. Your price target to exit is too far away

This is common to. You have to kind of guess based on how the stock has been trading, localized volatility, and support resistance points where a price move might go to. Usually these types if you don’t monitor them real close will turn into losing trades. The main reason is a scale up seller (for long bets) or scale down buyer (for short bets) is betting the other direction and absorbing a lot of the volume.

Most trade setups attract attention, so the more obvious a trade looks, long or short, and it does not really do that or struggles, the bigger the indication is to get the heck out. Some of these can result in a huge move the other way because they trap lots of short term money in the stock trying to trade whatever setup happened. There is no real method to add to work your way out of it, you really just need to pay attention. Getting out is the best solution because you are looking to avoid your stop getting hit and saving a bigger loss.

Do not expect to make money on every trade, its simply not possible – you have to pick your battles. If it appears something is off or wrong with the way the stock is moving, take any loss and just move on. Staying in a trade and always trying to turn it into a profit will result in much bigger losses eventually. You can think of the God rule (just a catchphrase) – When a trade goes wrong, (God) gives you one chance to get out – it’s up to you to realize the chance and take it.

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