Should I Stay Or Should I Go? Getting Out Of A Trade Under Your Own Power

Posted by on Sep 17, 2015 in Blog

Should I Stay Or Should I Go? Getting Out Of A Trade Under Your Own Power

Should I stay or should I go is a famous song by The Clash. But it also rings true in trading. Should I stay in a position or should I get out? That is the million dollar question that separates winning traders from losing traders. Consistently profitable traders know to get out and not let a position run too much against them.

There is the old trading adage “let your winners run and cut your losses short.” The problem with that statement is being able to tell when a position is going nowhere. It is easy to tell when a trade is a winner because it never really goes against you. Those are the trades you want to let run. A trade that goes against you is also easy to see because you are sweating it out hoping it will turn in your favour.

The hard part is deciding what to do when a position is bouncing back and forth in and out of profit and loss. Or what do you do when the market is in your favour for a while and starts to move out of your favour?

When you get into a position you want to get paid for it and the sooner the better. When you get into a position and the market sort of goes nowhere is like being in a bad relationship.

When I take a trade I expect the market to move in a certain direction. I don’t expect it to spin around and not really go anywhere.

Some traders are going to disagree with me on this point, but I have a loose time stop that I follow when I get into a trade. What this means is if the market doesn’t go to my take profit or stop level after a certain amount of time, the reason for getting into the trade has most likely diminished.

This is especially important if the market is a generally volatile one. CL, 6E, ES markets should move more than Bunds, ZN, ZC.

Here is an example of a 6E trade I made today.

9-17 6e comment

We were on our highs at 3:30am CT, granted it is the European session and it is ahead of a FED announcement later in the day so one would expect it to be quieter than normal. But that said it doesn’t mean there is no trading going on. The market can range trade, but still has the capacity to move.

I got short at 1.1351 because we were at the high and an Orderflows Sell Divergence setup as well as a Trapped Buyers Imbalance setup. The market did move 10 ticks in my favour pretty fast and I should have probably been happy with that. But in the 6E I tend to go for 15-20 ticks, so I would have liked to see the market break 1.1338 / 1.1339 then see if I should adjust my take profit a little more wider to get 20 ticks.

The market hit 1.1340 and bounced back up to the 1.1348 level. It stayed in may favour the whole time. But just couldn’t go lower than 1.1341. Most of the time it was trading around 1.1345 / 1.1346.

Almost an hour passed and I wasn’t really getting paid. I figured it was time to get out. I tried to get out at 1.1345 but couldn’t get a fill. I eventually moved up to 1.1350 just to get out for a miniscule 1 tick profit as the market traded up to 1.1354.

Had I stayed in the position for another 30 minutes I would have hit my target level of 20 ticks at 1.1331. Woulda, coulda, shoulda. But you know what? It could have easily just kept going up and stopped me out. There is no shame in getting out of a trade that is not working out. Did I leave money on the table, perhaps. We have all been in this position, in a trade that is in our favour then turns into a loser. Although this didn’t turn into a loser, it was getting near that point.

Here is a Eurex Bund trade also from today. Bunds generally move slower than the eurocurrency. This trade never went against me and ground down to my profit level of 15 ticks. With slow moving futures contracts it can be like pulling teeth waiting to get out.

9-17 bund comment

I got short at 153.86 based on the Orderflows Trader analysis showing a small single print. I was a touch lucky to get my sell off at 153.86 and the market just gradually sold off, sold off, sold off.

An often overlooked level of intraday support and resistance is the opening price. Price can bounce off that level intraday. Today the open was 153.72 and since I have been in the trade the market had tested that level a couple of times before finally breaking through and hitting my target level 1 ticks lower.

Even though this trade took a while to develop, the Bunds generally move slower than the 6E (eurocurrency futures) so I gave it more time to develop and the fact that it never went against me also helped in that decision.

Being a successful trader is about making the right decisions. Orderflows Trader allows the trader to be the one making the trading decisions not a black box.

Orderflows Trader highlights to the trader what is happening in the market so you can decide to get out or stay in the trade.

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