By Cliff Clark
In my view the most important thing a trader needs to possess is discipline. Unfortunately very few of us has been gifted with discipline and we need to develop discipline as we learn and grow as traders. How does one develop the discipline needed to be a trader? Through a well documented trading plan of course and training ourselves to follow that plan.
I think one method to help you stick to your plan on a regular basis would be to build some flexibility into it. Sticking to never bend rules can make it hard to follow a plan and to be disciplined. When the market takes a sudden sharp turn mid day and your trades are near targets wouldn't it be nice to have a little flexibility built into your plan that would allow you to exit or maybe take some partial profits. Having flexibility in your plan doesn't mean just sell at will when you feel uncomfortable. It means having documented steps that allow you to exit under certain conditions. I have several in my plan.
First off. Never, never, never be flexible with your initial stop loss. Your initial stop must always be taken or you are playing with fire. Some circumstances when you might want to add some flexibility to your plan:
- As stated above if the market makes a sudden turn at some point during the day.
- You have an emergency or have to leave your trading platform for some reason.
- A stock strategy doesn't break the way you expected. We see this one on an almost daily basis. I don't have rules for this one but I can see were an especially nervous trader might want to.
- A Swing or core trade gaps big time against you (this is likely covered under disaster rules in your plan).
- A time out on your trade. Suppose you enter a breakout on the 2 minute chart. The stock breaks nicely and runs an R, you move your stop to BE. The stock then goes sideways for 30 minutes. This is a case where some flexibility might be prudent. Especially if your low on buying power and could apply the funds elsewhere.
Those are just a few of the situations where you might exercise a little flexibility. There are probably countless others. I have no issues with anybody applying flexibility if it helps them to become more disciplined. Just make sure it's documented in your plan. The more experienced you become as a trader, the more flexibility you can enjoy just don't get carried away and end with a plan that is 100 pages long. Don't laugh I've seen 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.
