Thursday, December 07, 2006

Dumb Trade

You know these trades. You enter and immediately you have this feeling “oh shit, that was an error”. It goes against you 8 ticks in the blink of an eye and you should just reverse the trade. But no, you stick to it, hoping it would come back, allowing you a decent break-even exit.

But that’s not how the markets operate. Markets paint pictures, they set traps and you just fell into one. Your setup triggered, you entered without thinking twice and the alarm in your head: “Beware it’s a trap” goes off too late.

I fell into such a trap this morning taking an IBEX35 trade short against the open price. Everything fit: IBEX35 was weak, actually I had problems exiting an IBEX35 long just minutes earlier at a profit, DAX sold off, FTSE struggled after being up 10 points already.

So I took the short, but the spread widened to 7 ticks in IBEX35, DAX no longer sold off, but held support and turned, FTSE reversed and was up another 4 points. It was a trap.

I hesitated, not believing it, thinking about the 100 Euro I just lost in 3 seconds. And that was too long, IBEX35 squeezed up and my 30 tick Stop was hit 1 minute later.

A good day turned red (I made 2 good HSI trades earlier).

As trader we have to leave revenge feelings behind, we also have to shut out any grief or longing for lost money.

It’s our job to look for the next trade opportunity and it came as it always comes. IBEX35 made a 50 tick run, but neither DAX nor FTSE looked exhausted. IBEX35 was trading below yesterdays high, so I considered a Long, I took one, which went +10 max and then was stopped +2. I reentered a few minutes later again at the same level and was rewarded with a +30 trade. A trade seen also on the DAX and the FTSE btw.


One thing I learned in my losing week as well. There is no need to trade the same class of instruments at the same time. You may watch DAX, FTSE and IBEX35 or ES, NQ, YM and ER2, but take a trade just in one of them. They usually move in sync, so taking multiple trades does not diversify your risk, it multiplies it. And that’s better done by increasing contract size and focusing on 1 contract to trade.