Edition 611 - February 26, 2016
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Consolidation to Ledge
by Master Trader Joe Ross
Author, Trader, Trading Mentor, and Founder of Trading Educators, Inc.
This week we are going to look at when a 1-2-3 formation cannot be taken seriously. It has to do with trading what you see.
It has been correctly stated that stocks are far more volatile than futures, and I agree 100% with that statement. You regularly see massive stop running in stocks. Stocks are one arena in which I try to avoid placing a physical stop in the market. If they see it, they will run it. Now, back to the 1-2-3 formation. By definition, we have a 1-2-3 high. But what else do we have? What else can you see?
I see that within the 2-3 portion of the formation there are two matching highs and two matching lows. Does that mean we have a ledge? The answer is no. Why? Because a ledge occurs only in a trend. This is not a downtrend we are looking at, it is a collapse--a stop-running meltdown. The chart is of a company that deals in water development and supply. Water is in short supply in much of the world. Ask yourself, is there suddenly more water around the globe?
What else can we see on this chart? It looks to me as though we are also looking at the downside breakout of a trading range that began in early May. If that is true, then the point I've marked #2 is really a Ross hook. A Ross hook is defined as the first failure for prices to move lower following the breakout of any type of consolidation area. And if this is a Ross hook, we have a Traders Trick Entry to go short on a breakout of 1 tick below the point labeled number 2. When you look at a chart, you have to decide which of what you see is actually the most truthful of what is really happening with prices.
© by Joe Ross. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
The Sunk Cost Effect
by Master Trader Joe Ross
Author, Trader, Trading Mentor, and Founder of Trading Educators, Inc.
Many long-term traders and investors have trouble selling a losing position. It's hard to admit that you have made a mistake. There is a natural, human tendency to deny you've made a mistake, and thus, it is easier to leave losses on paper. When a loss is left on paper, unless it is part of your trading plan, you can tell yourself that circumstances will turn around. You can hope against hope that you'll end up profitable in the end. What usually happens, though, is that you hold the position and it loses even more money, and then the need to deny the loss and hold it is even stronger. Behavioral economists call this ailment the 'sunk cost effect.' When you sink enough money in a trade or an investment, you want to believe that it was worth it. Sunk costs effects happen in everyday life as well as in business.
First, become aware of the sunk cost effect. Acknowledge the very human tendency to deny making a mistake and the need to stick with a losing trade, even if it hurts you in the long run. It helps to be aware of the phenomenon and admit that it is a powerful effect. Second, remind yourself of the costs and benefits of holding the losing trade. Unless holding the loss is part of your trading plan, the benefit is usually that you don't have to admit you are wrong and face how much money you have lost. This benefit is relatively short-lived, however. While you hold a losing trade, you usually end up losing even more money, you feel guilty and worried about losing (and waste a lot of psychological energy trying not to feel guilty or worried), and you miss out on other investment opportunities as you obsess over your losses. Focusing on the disadvantages of holding a losing trade will help you close it. Third, focus on the future. People fall prey to the sunk cost effect because they focus on the past, 'I've already invested so much. I can't stop now.'
It is easy to feel paralyzed when in the midst of a losing trade. The worst thing you can do, however, is try to ignore the situation. You are human. You make mistakes. Everyone does. When you are in a losing trade, don't dig the hole deeper. Admit it, take action, and move on. The sooner you take action, the sooner you'll make up the loss. Don't get stuck; get moving, and take advantage of the endless investment opportunities available.
© by Joe Ross. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
Trading Idea with Commentary
by Master Trader Andy Jordan
Educator for Spreads, Options, Swing/Day Trading, and Editor of Traders Notebook
Click on the video below to learn about the selling Canadian Dollar put options.
Profitable trades are attainable! To find out how to manage this and other trades, and also to receive our daily detailed trading newsletter, subscribe to Traders Notebook.
© by Andy Jordan. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
When Not To Trade
by Master Trader Andy Jordan
Educator for Spreads, Options, Swing/Day Trading, and Editor of Traders Notebook
© by Andy Jordan. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
Backtesting a reader's day trading strategy for the e-minis
by Master Trader Marco Mayer
Educator for Forex and Futures, System Trader, and Creator of Ambush Trading Method
Marco highlights a readers question and backtests a day trading strategy for the e-minis. He also talks about such day trading strategies in general, and gives you some insights on trading costs, their impact on trading performance, and what kind of systems are more likely to work in the real markets.
© by Marco Mayer. Re-transmission or reproduction of any part of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.
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