This week has seen me trade my strategy almost religiously and it's been a profitable week. But although I've made good points, the 'almost' has raised a question which has haunted me all week and continues to do so, so much so in fact, that it's lead to me writing this post in the hope that it will lead to a little clarity.
The question...When do you decide to end a session?
On the face of it, it seems like a relatively simple question to answer, but when you really think about it, for me at least, it's not as simple as it seems and has left me in somewhat of a quandary. Let me explain.
My daily trading session is from 8:40am until 10:00am. It ends at that time because I start work at 1:00pm and have to go to the gym, maybe cook my lunch/ dinner (I usually batch cook twice a week to save time daily), walk, do all my shopping, basically organise the rest of my life, and walk to work, all in that three hour window. I know the markets that I trade (DAX/ FTSE) open from 8:00am, but I never place a trade before 8:40am as this is an important part of my strategy. This came about because when I first started I remember listening to various ex-professional traders on good old YouTube, and they explained that the busiest part of their day when working for the big brokers was between 8:00am and 8:30am as they were expected to place all the trades their clients had set with them as soon as the markets opened. This is, I believe, why quite often after 8:30am, the markets will usually appear to settle down into a less erratic mess and into some sort of rhythm. I remember trading on my demo account when I first started, and I tried to trade from the open and it was a disaster with the volatility whipsawing me in and out of positions. As I trade exclusively on a 5 minute time frame, the earliest I will place a trade is 8:40am.
Yes I miss moves, sometimes big moves, which previously, as I didn't religiously trade my strategy, I would try and jump in on, only to hesitate and get in at the end or, get in but then get nervous and jump out for a pittance of points. Now though, I am content to watch the market move without me because it is not the results that I consider important, but the fact that I am disciplined enough to trade my strategy and not be tempted to deviate. As I write this I feel I am almost aware of the answer to my question because in fact, in that last sentence, I have essentially made it moot. How weird. I never fully accepted it until I just saw it written in black and white. This post is almost pointless now, but I'll finish it as it might help me to truly embrace what I seem to already know...
I'm not sure how to word this next part? With regards to the question of 'When to end a session?' it has only really come about because now I am following my strategy, especially when it comes to exiting a trade, individual trades are much more profitable than before because now I am applying true discipline and will stay in a trade way longer than I ever have previously. Now, I will essentially let the trade breathe, whereas before, I would get nervous and my lizard brain would snap close it before I even had time to consciously realise. This meant that without and thought, before all of this, I would just sit and trade until 10:00am and then go about my day. But now I'm realising better profits per trade, I find myself in a state of turmoil because I always considered a big part of my strategy is that I trade between the aforementioned times, and trade unreservedly until 10:00am, but when I think about it now, do I have to trade until 10:00am or can I simply stop whenever I feel I've made good points because it would be silly to keep trading and possibly give it all back? Is this discipline...or fear? I feel like honestly a good case could be argued for both and it would likely result in a hung jury.
I might digress a little but stay with me. Trading is a personal endeavour. In fact it is often said that to be successful you have to find a strategy that fits with your personality. For example, our appetite for risk. We all have a different tolerance for risk which is largely defined by our personality traits. I myself am happy to embrace the risk of trading and I genuinely do not feel anything if I have a losing trade, a losing day or a losing week. I fully accept, as a belief, that this is a part of trading. In fact, in my opinion, it is the most important and often difficult part to master. But master it you must if you're to become consistently successful. However, my tolerance has a limit. I've listened to a great trader, one that I not only admire, but aspire to and respect and actually owe (well, I feel I do at least) a debt of gratitude that I could never repay. But, I have seen this same trader ver often allow 30/40/50 points or more of unrealised profit evaporate as he was wanting the market to move higher. In fact he has said previously that he has let 100 point trades stop him out for breakeven, in the hopes that it would push higher. Now this is something I could never and will never do. Sure you didn't lose anything because your stop was at breakeven, but I cannot see how letting this amount of points simply disappear, is good trading. In fact I think it's awful trading as it's akin to a gambling addict that simply cannot walk away from the table, even though they are up. They have to see the next card, or roll of the dice and they have to keep putting on bets, sadly, until any winnings they had are long gone along with their original stake. This is why my strategy has a sub strategy when it comes to exiting a trade. This is why I said at the beginning that I almost traded my strategy religiously. You see, my exit strategy is based on the prior candle and it's Marubuzo. The mid point of the candle. If the prior candle has say a twenty point range from high to low, I will close it if the market comes back to the mid point. Essentially I am sacrificing 10 points to see if the market will continue in my favour. Yes this costs me points because sometimes, it will just go past the Marubuzo, and then reverse back in the previous direction, my direction, but it is what it is. It's trading. (This is the part where I think I am answering my question because if I am okay with losing and with the market moving without me, which I am, then it stands to reason that I must be okay with ending my session before 10:00am? The reason for my question is I saw that if I had just stayed until the end (10:00am) and continued to take the signals my strategy provides, then I could've made so much more. On review of this week, this is exactly what happened. It could've been a 200 point week. This means it's nothing more than FOMO - back to the article) The issue comes when the next candle has an even bigger range because the Marubuzo rule is only used on closed candles, not the current (active) candle. If this next candle suddenly snaps down (if I am short say) and has a range of 40 points, because it's active and so the rule doesn't apply, I am now sacrificing 30 points. 10 points from the prior candles close, to it's mid point, and 20 from the active candle as this is its mid point. I cannot let 30 points go. I say I can't, I will let the trade breathe as mentioned before, but if it starts retracing hard, I have to fight with myself with every fibre of my being when it gets near it's Marubuzo, to stay in the trade. I feel very strongly that it's not good trading to let so many points go, especially as a day trader on the 5 minute chart. So say I close it outside of the guidelines of my strategy, now I have 30 points which is not too shabby a morning. However, this is where I find myself in turmoil. If I stop trading now is it because I'm fearful of giving it back and possibly more, or is it good disciplined trading to realise a profit, having traded well in the moment, and end the session accepting that whatever happens next in the market, is inconsequential, as you were never going to be able to take advantage of it because you already ended the session? I suppose I have to ask myself this -
As I don't trade the US open (PM session) do I find myself rueing what could've been if only I had done so?
If the answer is 'no', which it is, then why would I rue what happened after I decided to stop trading as it's essentially the same thing? See this is where I think I've answered my question. I know I am not a fearful trader because I take the signals generated by my strategy without hesitation, now. I accept loss whenever it occurs and if I find my self down at the end of my session (10:00am) I will close the broker and accept that today was simply a losing day, nothing more, nothing less. I will look to add to positions when signalled to do so (price action dependent). I will let a trade breathe instead of panic closing it at the slightest resistance. I have, as a trading belief that my job is to make points, but I don't have to make all the points. So I guess that's it. On reflection of what I've just written, closing a session before my cutoff, is not fearful, but is in fact, good, disciplined trading. I am trading to my personality.
Making money in trading is never, and will never be easy, but having a good dependable and tested strategy, and the ability to stick to it in the good times and the bad, will make trading as easy as it's ever likely to be. Remember, your job when you trade is to make points, but you don't have to make all the points.
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