I hope so.

I think it is important for traders to use specific targets that address their loss tolerance and profit targets.  There is a temptation to ride losses too long in hopes that the market will come back to a break even.  This can be a tragic strategy and result in unacceptable losses when trading the emini contracts.

Why would people ride their losses?

Emotional involvement in trades is generally the culprit in any kind of trading, and especially for scalpers, as the markets swings in intraday trading, sometimes violently.   It’s is this emotional involvement in a trade that accounts for a tremendous number of trading losses.  It’s more than difficult to accept a trade as a loser and move on.  Say,  for example, you get what you consider to be a perfect setup and take a trade, and most perfect setups (whatever they may be) have resulted in handsome profits.  The assumption, then, is that every trade where that setup is utilized will result in a winner, sooner or later.  Bad strategy.   There is no foolproof trade, and every trade (no matter how nice the setup) results in a loss.

It’s difficult for me, and most traders, to accept that a certain trade has resulted in a loss.  After all, the 5 identical trades before it produced sizable gains.  Learning to cut your losses and move on to another trade is one of the most difficult exercises a trader must execute.  Set your loss tolerance and if you blow out of a trade, move on.

This is much easier said and done, and even with stops in place there is a temptation to drag a stop a couple of points lower to salvage a trade that is not working out.  I’ve been there, I’ve done it, and I’ll probably do it again.  It is always wrong to do, though.  My experience has taught me that I enter bad trades when I try to pick a counter trend trade.  These trades can be very tempting, but price exhaustion is one of the most difficult trades to execute successfully.  For that reason, I like to strike an 89 point SMA and when the market is significantly below the 89 point SMA I stick with short trades, and visa versa for price action above the SMA.   This should keep you nicely in the trend.  It also weeds out those disasterous countertrend trades.

In volatile markets I detest trailing stops, and I generally don’t use them.  I am not against moving a stop loss up, but the normal market action often gets you out of a good trade before completion.  Be careful using trailing stops, while they sound great in theory, they often have to be very wide to be of any real value.  For myself, I prefer to bracket trade, using 3 point (12 tick) stops for my loss and profit targets.  I have found this to be fairly flexible for trading in normal markets, and in volatile markets, which we saw early this year, I allow 4 point stops (16 ticks).  These numbers are for trading the ES contract.  For the YM contract, I like to use 25 points bracketing long and short positions.

But remember, don’t attempt any trade without preset stop loss and profit targets established.  Good luck trading and come back.