Ok, so in short:
How do you spot a trade will go wrong and act accordingly?
It amazes me how many people ask this kind of question, or similar. Another common one being ‘how do you correct a bad trade’. I responded to Kevin briefly before asking to use his email for a post, so he’ll know it’s nothing personal. But I’d like to ask a question of my own:
Imagine you’re in a car that is going to have a car crash, how do you spot it before it happens and correct it?
Clearly there’s only one answer. Don’t get in that position in the first place. And if you do, accept it for what it is and get out of it at the first possible opportunity.
There is no ‘safety’ or ‘way of correcting it’… unless you’re that confident it’s going against you so hard it’s worth trading in the alternate direction. Even so, I wouldn’t say that’s correcting it. They’re separate trades.
Going back to the line above there about getting out at the first possible opportunity. I know for a fact traders do this (as did I at one point). If you find yourself in that position where you feel like you ‘may’ have things wrong, pondering an exit. The chances are you should already have dumped the trade, be it for a win, scratch or loss. The reason is simple, if you’re not confident about the trade it’s pretty much guesswork. It’s also the easiest time for emotion to creep in, forcing you into a bad decision.
If we go back to the car crash analogy:
Imagine you’re hurtling towards this potential crash, would you think – I’ll just wait and see how this pans out…
Unlikely I’m sure.
Being that rabbit in the headlights never helped anyone. Ever.
It’s a bitter pill to swallow for many. Probably because it takes a harder look at your own personal behaviour in the moment, while trading. For the majority, it can be a very hard thing to do but, self assessment and personal awareness are bit steps on the way to profitability.
I think the saying goes something like:
‘PREVENTION IS ALWAYS BETTER THAN CURE’
I think this recent poll highlights the main problem quite well…