All traders are guilty of exiting a winning position too quick. We fear the loss of paper profits or perhaps we trade our P&L instead of our charts.
Whatever the reason, holding on to a position requires discpline and most of all a set target in mind. Many new traders tend to exit a winning position too quick just to re-enter and end up chasing the markets. How can one prevent this?
Couple of interesting questions pop up in my mind. As intraday traders its good to have daily, weekly, and monthly goals. Are you capable of managing a position throughout the entire day? Do you prefer to set specific goals on a intraday basis? Some traders would rather take 2-3 ES pts then stick around until the close to manage a position. What does your personality tell you?
Scaling Out
Scaling out is a method I use to help me control my greed and fear. With defined exit targets for portions of my position, I am able to hold on to the last quarter position. For example, if a trader is trading 2 contracts, his first exit target should be 10-15 YM pts. Once this is hit he can then bring his stop to break even and try to ride with the remaining contract.
Thus scaling out helps manage a trade psychologically.
Understanding What "They" Are Doing
Its the big traders that really move the markets. So what are they watching at? Big traders and floor traders who make up most of the volume watch for key price levels. Its fascinating to see the markets travel from one pivot to the next. This is how the markets behave.
New traders need to hold a stronger belief in their methods. If price breaks a pivot and the previous days low is 20 YM points below it, expect "them" to bring it down to this level. The markets like to test key levels to see if there are buyers or sellers at these levels. If not, "they" will take it down to the next line of pivot.
In the chart below, notice the break of price from the value low pivot. Where can you expect prices to travel next? Answer: the previous days low. This is typical market behavior. Always know where your next line of S&R and this will help you hold onto a winning position.
The markets don't just reverse at random price levels. They will test key levels. Afterall, we are not trading the markets. We are trading other traders. At what levels are the big players looking at?
About the author
James Lee is a full-time day trader specializing in the mini-sized Dow futures. His core trading strategy is based on pivot point clusters and Market Profile. You can learn more about his trading methodology at http://www.traderslaboratory.com.
