Thursday, 20 January 2011

Something's Broken? Part 1

The last few days I have had both emails from students and from readers asking about when to stop trading on a losing day, or whether one should have a daily loss limit. Some of this was because of the post looking at whether one should have a daily profit target or not, but also from traders who had been having a string of profitable days before hitting a deepish pothole.

The first job is to identify that something is different. The something different can be that the bars on the charts are not as smooth as usual or that the EMAs are going sideways or that the CCIs are chopping around the zero line, or, it can be that you have a stomach ache or are thinking about the fight you had with your spouse or that you feel out of sync. The result may be that your loss pattern is different. Have you traded your TP?

Losing days for inside-out trading are a result of sideways markets where the moves are not long enough to give a profit. In my course I teach traders to switch modes when they identify those markets and to trade outside-in. Identification is the issue because you need to know its chop before you lose too much. Whether you use EMAs or ADX or something else, being aware of market conditions is important.

If something different is happening and you are losing and don't know why, I think you should definitely stop. Trading in the dark is the road to losses. Once you have identified what is happening, then the next job is finding a solution. We'll look at this in the next part and talk about profit and loss limits in yet another part.

The video of today's ES trading is based on Market Profile and shows how I use it. In addition to what I talk about in the video, the info from the range bar chart helps time the trades too.


  1. Great video today EL, like the way you married POC and TPO explanation along with swings in Pre Mkt. then RTH for those of us late sleepers in the States ;)

  2. Yeah, the videos are awesome, and I think most people will benefit that you are focusing more on the MP side of your decision making instead of the indicators on your chart. Bravo Tom!