Let me start with some examples:
Example 1:
You followed your trading system, you took a long trade and was stopped out. As it turned out, you were stopped out right at the bottom of the intra-day low (or daily chart if you preferred). Price began to climb back up per your trading system original thesis which was to go long.
Bargaining:
“Sh*t! Stopped out at the low again! I knew it! Why did it have to happen to me! Now the price is going back up; if I’m jumping back in, I’ve to pay higher price than I stopped out for. Sh*t, it just took out the yesterday high! Damn, I can’t jump back in with this price! It’s more expensive than when I first got in.”
Trading:
“Hooray! My thesis (aka as trading system signal) is still on after all. Price took out yesterday high! There may be a chance I can make this trade work. 3x profit here we go! [Click, click and click] Just bought back some close to yesterday high. I’m going to put a stop below today intra-day low (or day low if you preferred). Now, let’s kick some ASS!”
Example 2
Price reached your profit target but reacted suddenly so you gave up a point. Per your system, you should take your profit now. Even though you gave back a point, you still made 5 points profit.
Bargaining:
“I want that point back! I’m going to wait for price to go back up there before I take profit.”
Trading:
“Holy Smoke! That was a sudden 1 point drop. I’m getting the fuck out of here with my 5 points profit. Adios!”
Example 3
Price reached to a point where you should be taking your loss. You only have a mental stop because you didn’t put on a physical stop for whatever reason.
Bargaining:
“Holy shit! I’m not sure if I want to take my loss here. I’m afraid I’ll be selling at the bottom. Yesterday down day was already over-sold. Fuck it, I’m not going to sell now and have to buy back at a much higher price later.”
Trading:
“The train stop here! I’m putting a market order! Come on… come on… get me fucking fill already!”
Example 4
This is actually a week later after example 3 above. Prices were down all last week. Per your trading system, you should have taken your loss last week based on example 3 above.
Bargaining:
“I’m fucking dead already! What is the point in selling here now? If I sell here, I’m definitely selling at the bottom. I’m going to wait for that Hail Mary piss on your face rally that is gonna get me back to the price I wanted. Come on, give me your shit! I’m not afraid anymore. I’ve resigned my fate to the stock god now. ”
Trading:
“What are you looking at me for? What? What did I do with the stock? I don’t remember, didn’t I sell it last week already?”
The way I see it, we always carry our past with us in our head. Because of all the history, we tend to compare our current action against the past. Perhaps, in some perspective, it can be beneficial because it helps us to avoid repeating past mistakes. On the same token, this “comparison” of the past can also hamper our trading success. Perhaps due to our genetic programming or cultural upbringing, when $$ is involved, we start to compare prices. And when we compare prices, we somehow automatically enter into a “bargaining” mode in our head.
For crying out loud! Do you really want to bargain while trading?
Below is my take of unproductive thinking when trading:
– if I cut my loss now, I may end up paying more to get back in. Definitely not as good a deal if I hang on with my original entry price.
– I loathe to pay the the whip-saw prices for jumping in and out.
– I probably have to pay higher price to get on board. Price hasn’t taken off yet but may soon be; but I think I can count on saving a few penny here to enter. (Meanwhile, you are completely obliviously to the dollar the trade can give you.)
Listen, in trading, getting a bargain is SECONDARY to survival! When you bargain in the business world, you have the luxury of holding off your purchase until you negotiated a price which you think is a good bargain; but in the trading world where the health of your portfolio is hanging in balance based on the decision you make, sometimes your getting “pissed” at losing a bargain and trying to hold out for a better price can cause even more harm than good. Not to mention that you are not cutting your losses quickly but also giving up great opportunity to lock in gain because you are trying to bargain for a good price.
“I refuse to get out until the bargain price I wanted come back!”
or
“I refuse to get in until the bargain price I wanted is filled!”
Good luck! ’cause we don’t know if the bargain price you want will ever come back!
Now, tell me. Are you trading or are you bargaining?
Good Hunting!
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ABT
Sorry, don’t know what ABT stand for…
Maybe ABT stands for, “Always Be Trading”.
This article reminds me: it can be tough following rules for timing to get into trades.
I’ve been wanting to use limit orders to get into a trade, so I wind up not overpaying. The other day I was eying a stock ($SNHY) my screening system told me is a buy, and it was just starting to rise up last week.
So I watched it this Thursday morning, and it started off at high price, so I set my limit order right under the high. I got filled well under my limit, but that’s because the stock was starting it’s way down (ended $0.50 down for the day).
I was worried I was going to miss out a big move up (emotions), so though I set a limit, I failed to notice the stock had already dipped the past three days and shot up back to where it was in a general downtrend.
Going back to the daily chart I should have bought a few days ago since the price dipped.
Of note, I’m not daytrading or swingtrading this security, but just wanted to get in at the best price. Maybe for longer-term holdings the best price from a weekly range it’s that relevant.
The best price is the price where the stop loss you have is acceptable to you based on your TA analysis (weekly, daily, or intra-day). That is the only way you can look at it.
Since you are looking at it from a weekly range, I would assume your stop loss will be at low of last week bar. If that loss is acceptable to you. Then you have your best price.
In other words, best price is a very personal point-it-view.
You should always use limit orders. You should know your price. It doesn’t mean you will get filled, but so what? The only exception I can think of is on exit if there’s something that makes it absolutely positively necessary for you to blow out at any price. Then a market order would be appropriate.
Emotion or psychology has absolutely nothing to do with trading. If you think it does, you need to make more trades. The more trades you make the better you will be.
Hitting the right timing is not always a normal condition in trading. The best you can do is get into the middle of the action and protect yourself with stop loss and profit target.
From the SNHY chart, I saw a long-tailed doji on Monday followed by a solid green candlestick bar on Tuesday. If this was the stock I’m looking to trade, Wednesday would be the day I looked into getting in since it took out Tuesday high. Watching the intra-day pivot low and high would be my way to try to get in. Thursday gap-up open was a high risk trade to enter at the open and price action was treacherous. Even if you were already in the trade, it was still a difficult play if your profit target was much higher than Thursday high. On Thursday,I gave back all my profit I made on Wednesday on my DDD trade. Most of the times, there are no way we will know how the trade will turn out, even when it looks so PERFECT on the get go.
The only thing you can control is your entry and exit point. My post (trading vs bargaining) is meant to emphasize that when it comes to locking in profit or cutting your losses, trying to drive a hard bargain during these times is similar to the old saying, “pennywise and pound foolish”. Sure, by not bargaining, there will be times you pay too much or give up some gain; but on average, you will come out ahead ’cause the losses you didn’t get out due to your bargaining can become a giant hole in your pocket. Like a wild fire, once it starts, you will be shocked how quickly it can spread!
This is a reply to Ultramarine. Forgot to hit the reply button.