Why do most traders get it wrong when it comes to adding to losers?
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In this week’s NinjaTrader Charting Edge we pull the E-Mini NASDAQ, explain why I’m currently short it, the reason why I highlight the first day of the year – the open, the low, and the high , and why do most traders get it wrong when it comes to adding to losers.
Adding to a loser is not adding to a trade that is against me. It’s adding to a trade that is worse than my intended stop price – my risk price. My risk price is all that matters to me. Once that’s determined, anywhere in that area below it or above it – long or short, that is my range of execution. In the NASDAQ, anything below the low of the first day of the year to me is a green light to continue to look for shorts. If we get above opening range or above the 10 day moving average, then I am wrong in that trade and that’s where I don’t add because that would be adding to a loser. But if we continue to show that we can’t get above that opening day low and we may keep bouncing off the 10 day moving average, going lower, I will look to get aggressive.
Because the market’s proving to me that this idea is working. We have to take the feedback from the market. We can’t implement or force what we want to happen. But if something is showing me that it’s working, like when I saw this high of the day come right below the opening day low and fail, get right back below the 20 day moving average, in my mind, the market has proven to me what I was looking for was working.
I know if I continue to see things that I think should happen, work, I get aggressive. Now, if we start to keep chopping above the opening day, low of the year, and it’s just not showing really clear that that is working, then I can’t be aggressive. But if it’s showing to me that it is working, I have to take advantage of that because markets are so much about taking advantage of moments. It’s about seizing moments.
Traders, as we begin the new trading year here in 2022, one thing that makes us better traders each year is having better situational awareness. Remember the environments that worked well with your strategy and take advantage of those moments. Remember the environments where your strategy didn’t work well and have the discipline to step back. If I just followed this advice, I would have gotten better each and every year.
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Develop Your Edge is a weekly YouTube show hosted by 23-year futures veteran and CME member Anthony Crudele, an ex-pit trader and one of the first to trade the E-Mini S&P. Each week Anthony and his guests discuss what they are doing to Develop Their Edge in trading futures! Past performance is no guarantee of future results.