Sorry, No Holy Grail's in this Game!
By Cliff Clark
After a frustrating string of losses, many new traders (and some old ones) begin to search for the holy grail or some magical solution that will turn their trading around. Anything from a full proof pattern, the newest indicator or the most advanced trading platform can appear to be the magic solution that will turn around these trader's performance. But the truth of the matter is that the string of losses is more likely the product of a more basic reason, the lack of or a poor trading plan or pre-trade checklist.
Trading Plan: I know this has been repeated many times in countless articles before. But seriously, how many traders have a sound trading plan? Most reasons for the lack of consistency of a trader can be traced back to the lack of a sound plan, or the unwillingness to stick to it. Make sure that you produce a sound plan that contains sections for goals, strategies and money management.
Pre-Trade Checklist: You've heard it before, pilots and checklists. It's repeated many times daily in the trading room. You need a pre-trade checklist. I have lost track of how many traders I have convinced they need one and how quickly their trading turns around once they actually sit down and create one. It's time, here are some things to consider to get your started:
Is there room on the chart for your strategy to hit your target?
Are you trading with the trend of the stock?
Have you looked to the left, have you checked the higher time frames?
Are you trading with the market? If no, does the stock have relative strength?
How is the volume? I like to see volume increasing as my pattern forms!
Those are just a few things to consider, there may be other things you can add for your own trading style.
I can't stress enough there are no holy grail's or magic solutions, you need a trading plan and a pre-trade checklist. I plan to keep beating you about the head until I knock enough sense into you and you finally create them!
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.
