Trading is a funny thing, especially after you have stared at an emini chart for four or five hours. A trader can see possibilities in every price move, and usually these potential trades are losers. Learning to control your emotions and stay disciplined in your trading is one of the most difficult aspects of trading. To be sure, it is, in my opinion, the MOST important aspect of trading. In my opinion most traders fritter away their money by making emotional trades they should never have taken.
Emini trading is the process of discerning proper set ups and taking those set ups in a disciplined way. In past posts have described a number of filtering mechanisms I use to keep me out of bad trades.
1. I try to never take counter trend trades
2. I strike an 89 period SMA and usually take short trades when the price action is significantly below the 89 period average. When the price action is significantly above the 89 period SMA I concentrate on long trades.
3. I use DecisionBar, with it’s dynamic support and resistance lines, to get a read on the market range and breadth.
4. I set specific stops and limits with my trades using the Absolute Range Indicator.
But here is the problem most emini traders experience, they become emotionally attached to their trade. Sometimes the very best looking set up will result in a loss, and there is nothing you can do, as a trader, to change this besides exit the trade and look for a trade. The problem many traders have is an emotional attachment to their trade…since the trade looked so well in the set up stage, surely it will eventually result in a nice gain. This is not true.
A good trader learns to cut his losses and lock in his gains in a disciplined manner. A good trader has no emotional involvement in any trade he makes. It is akin to a math equation, when it’s time to exit a trade….it’s time to exit a trade. On the other hand, I have witnesses hundreds of traders hang on to bad trades and ride them right in the ground.
Why?
The have invested their emotions in the trade and are convinced that it should be a good trade. The market is always right, you are always wrong. It’s a simple axiom, yet one of the hardest to conquer when trading the emini contracts. Or any other contract, for that matter.
This is no simple skill to master, as it requires you to think akin to a computer. After all, we all have emotions, and we all want out trades to succeed. But a certain percentage of trades are not going to profitable. That is a fact of trading, so cut your losses when it’s time and find a new trade.
