I've seen lots of question in the trading room asking who Jeff Yates is. Well I found this piece that Jeff wrote a few years back. I hope he doesn't mind me post it here. Enjoy! -- Cliff
It’s OKAY to lose sometimes
by Jeff Yates
As I write this article, I think of the many traders in the world out there that can’t accept temporary defeat. There are so many new traders that enter the markets each and every day that will not allow loss.
My friends, I am here to tell you that “IT’S OKAY TO LOSE SOMETIMES”. Traders seem to run into problems when they have a few losses under their belt on any given day and they start placing trades all over the place trying to get their money back. This is where discipline is paramount. If you are not having a good day, just realize that it’s just one day. The last I checked, the markets will be open again tomorrow. Some of the best traders I know have losing days.
Over a five day week it’s possible for a great trader who earns a living from trading the stock market to have a losing day in the week. Here’s an example of the likely results you might see from a full-time trader on any given week:
Monday: +$1800.00
Tuesday: +$62.00
Wednesday: ($-228.00)
Thursday: +$822.00
Friday: +$ 190.00
There you have it. Over $2500 in a given week and 2 out of the five days the trader was better off not even bothering to show up and trade. The key is to keep your losing days small and let the winning days just happen. This can ONLY occur when you stay objective and have discipline. This concept was one of the most encouraging things I had heard when I was a new trader. No one ever told me that it was OKAY to lose at times. When I was down on the day, I traded twice as much just to try and get back to break-even. Although sometimes I did, more often I did not and as a result I encountered even greater losses by the end of the day.
The mind set of a trader has to be one of calmness. Watching money go down the drain is not a fun thing to have happen to you. The self talk that happens when a trader is not profitable on any given day is incredible, except for traders who understand how we must roll with certain days. A typical day for a new trader may start off with excitement and enthusiasm and they may even feel butterflies running rampant in their bellies.
As a novice trader, you may find that the first trade does not go so well; the second trade is even worse so this time you don’t take your stop loss. Your inexperience says to you “Shoot, the stock is still going down, OK, I’ll buy more down here; surely this will allow me to get out.” The market keeps falling; there is no bounce in site and your capital is at ZERO. You know that you will get a margin call if you leave this open but you take your chances hoping that you can get out within the 5 day call. Your spouse notices a different attitude today as you worry about this stock coming back to break-even. You can’t sleep, you toss and turn and you can’t wait for the morning to arrive so you can get to your computer and check your stock in pre-market. The market opens and you get a bounce and take your profits just over break even. You are so happy now because you did not have to realize this loss. This situation occurs again and again until the market demands all of the profit not only for this new trade but for all of the others that you did not earn correctly. Oh, and by the way, the market wants penalties and interest as well. Does this sound familiar to anyone? Maybe you or someone you know?
My friends stay disciplined and follow your trading plan. Don’t ever let the story mentioned above happen to you. If you allow it once, you will allow it again and again until the market will not let you play in this trading world ever again.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
