Projecting Your Fears into a Chart
By Cliff Clark
As traders we enjoy our winners and get aggravated with our losers. Even the most mechanical trader will enjoy a winning trade if it was executed to perfection, following his trading plan to the letter. But allowing yourself to get overly emotional, can have negative side effects when you allow the wrong set of emotions to take over. A good example of this negative emotional state can take place when you allow yourself to project your fears into a chart. What do I mean?
As you know charts display the supply and demand relationship existing at all times in every time frame. You also know that the charts don't care what may have happened to you in your last trade. So whenever you have a losing trade, and the next time you see a similar pattern you project your fear of another loss into the pattern, looking for the slightest excuse not to take the trade, you are allowing your past experiences to shape your plan. This phenomenon presents itself through a constant negative self-talk process where there's a conflict in what our eyes see and what our fearful self thinks it's seeing. Even if we're watching a pattern that our logical self labels as a quality pattern with high odds, our fearful self is able to quickly kill any intention to trade it. Unfortunately many traders still allow such fears to interfere with their trading. It's possible some of your past experiences were the result of a flawed approach. Let's say that you were buying stocks as they reached resistance, not realizing it, and you incurred many losses. If you were able to realize the mistake and made the necessary changes to your plan your past experiences wouldn't have interfered with entering new positions when the next entry appeared. We have to constantly monitor our losses to know whether we are making real mistakes or whether it's just one of those trades that just didn't work out. .
The main problem here is that these negative experiences affect our confidence. Confidence along with discipline is what makes a winning trader as I have discussed many times in these articles.
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.
