Here was the general plan:
I won’t go into detail regarding the wider market environment and context within which the trade occurred. It’s not the point of the article.
Truth be told – it was a marginal trade at best.
Ideally such a trade would be taken in a market with a strong bearish conviction.
But that wasn’t the case.
The environment was poor. There was no clear trend structure in place. And the bias was uncertain, with price showing no clear dominant strength with either bulls or bears.
But I was aware of this. I was in “trade cautiously” mode. Standing aside mostly. With a plan that if I did take a trade it was to be with a smaller position size. This would continue until there was a clear trend structure and some good directional conviction.
We could argue back and forth all day as to whether or not the trade idea had edge. I will accept it was marginal.
But I took the trade.
And it contains a good lesson on active trade management.
So we will discuss it today.
Here are the charts just prior to my entry:
Here’s the entry:
Here is what I’d like to see happen:
But what we want to happen, doesn’t always happen.
And that brings us to today’s lesson:
The key to effective Active Trade Management is knowing what SHOULD NOT happen.
There are two outcomes that SHOULD NOT happen, if my trade premise is still valid.
(1) Price will immediately smash higher and stop me out. Should that happen, I’ll just take the loss. It’s unlikely that I will have the opportunity to work a better exit.
(2) Price will stall towards the upper edge of the congestion area and then break higher.
Here’s the outcome:
The key to effective Active Trade Management is knowing what SHOULD NOT happen.
Then recognising it.
And acting to contain any damage.
If your edge is gone, GET OUT.
Happy trading,
Lance Beggs