What is probability?

It is a greater likelihood of an event happening over an event not happening.

Here's the set setup from this morning. I traded TNA long from right before it went to new highs. It stalled out so I took profits and shorted it. Some good momo for a few candles then it stalled again. I didn't go long but only waited because the short momo seemed strong.

Lo and behold I saw a doji appear on the QQQQ at the 11:15 candle. That said the probability of it dropping more was greater than not. So I took TNA short, FAZ VXX long resulting in profitable trades. No other reasons. NO thinking.

First chart is QQQQ. Screen capture is a few candles late. Red lines are support/resistance lines I draw on when I start which not coincidentally is right where the doji appeared.

Second chart is TNA short

Third chart is TNA cover

Reader Q & A 5/26/10

Hey Scott,

I don't mean to spam you, but I have question about staying in a winning position. Is there a specific procedure you have for adjusting stops? I know trailing the highs/ lows of the previous candles works, but how do you make it through the pops and drops against your positions? I'm guessing you can kind of tell when they are weak/strong pushes, and that's something Ill learn with more observation. If you could shed some light on the topic I would appreciate it.

Thanks,

Aynul (avid reader)

Hi Scott,

Your most recent post on how you enter into a trade early was a real eye opener. I am currently going live trading futures with a small account. I paper traded based on your teachings...that is go with the flow of the market. So i trade with the trend once price touches the 20/30ema and then counter trend trade when i see strong divergence on my divergence indicator....always taking small profits and taking a small loss when i am wrong. One thing i have learnt from the exercise of taking numerous paper trades is that at the end of the day i will be profitable, but to make a bigger day is to add to the winning trades. Due to the small nature of my account i still suffer from fear of losing my capital and thus don't add to the winners. Now i will look at entering earlier and getting out for a smaller loss. I am using range bars but can work with minute bars too.

It is funny, since i was just thinking about this this morning and then i read your post. Lol, i think i am heading in the right direction...if i have started to think like you.

Reading your posts certainly opened my eyes to a lot of tricks/tips that i can use to minimize errors.

On another note, on average, how often during the day are you wrong and take a loss, and how do you add to winners? Also, how do you come back from an early morning big loss...i seem to always make a losing first trade and don't know how to get out of this pattern.

Thank you,

Anon

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I found these questions in my FNG email box which I rarely check , so sorry for the delay in answering them

Aynul- It all comes down to momentum. With a strong trending stock,I'll constantly move my stop in the direction of the move. I stick to using the near time momentum for stop levels with these as well. That means I keep the stop just under a pullback candle for a long position for example.

With faster moving stocks I'll usually keep it at the original stop level until the momo says it is finished, then cancel the stop and take profits. These faster stocks can really bounce around and it is easy to get taken out otherwise. So it is better to let the original premise for the trade stand. When you can gauge the momo correctly, you are not often stopped out.

Taking profits go hand in hand with stops though. You must have a plan to capitalize on the opportunities that come your way. Big candles are a sure signal to me to take profits regardless of what else is going on.

Anon- Worrying about losing money will actually attract losing trades to you. It's like telling yourself "Don't drop the toast on the floor" Of course then you proceed to drop it. Your sub conscious only hears the command "drop the toast" so it does.

When you can get into the flow and have confidence in your edge and trading plan, then the results will come. Adding to your winning trades even a little bit will eventually make you more successful. Just keep those losing trades small.

Depending on market conditions I take a few or many losing trades. They are always small though because when I stick to my system it does not let them grow big. Taking many small losing trades is normal in this business. It also makes perfect sense to add to the winning trades.That what a successful trader does.

If you are always getting a losing trade first thing in the morning, why don't you try paper trading th efirst couple of opportunities that come your way to get' warmed up" . Then start in with real money .