Today was one of those tradings days where you could see what was coming but it wasn't necessarily easy to take advantage of the moves. From early on in our live class this morning I was talking about the distinct possibility for the "bottom to fall out of the market". Even though it seemed a likely event it still took a number of attempts to make the move.
Hitting Some Singles and Doubles for Average
Once I finally did latch onto the bigger move down I also didn't really take full advantage of it. I banked +14 ticks (3.5 points) but I could have had 40 ticks. I could have taken even more if held on for the entirety of the major swing. C'est la vie.
It's not an ideal outcome but I don't beat myself up over it. These bigger moves get away from me from time to time. The reason why I'm okay with that is because I know that not every day will have those bigger moves. As a day trader this means I need to "hit for average" with plenty of smaller, regular wins too. This is crucial to making consistent daily and weekly profits instead of only making money during longer term trends.
I want to make sure that some those smaller but still profitable moves don't eventually turn into losses because I waited too long and the market reversed. This means locking in some profit when the price action becomes less clear or shows signs of a pullback. If that requires a tight trailing stop which sometimes gets knocked out then that's the price to be paid.
I still manage to catch some of those huge runs though as regular readers will have seen before in these Emini Day Trading Lesson posts. The difference is that in those cases the market essentially doesn't give me any choice in the matter because it barely pulls back at all.
Consider Your Trading System
This kind of management isn't going to work for every trading system so it's important to assess the pros and cons of your trade management approach and adapt it within your methodology accordingly.
I personally try to keep my win rate relatively high with a strong reward to risk ratio (above 2:1). I need to do this while still keeping the ability to adapt to shifting market conditions. This means taking regular, consistent profits while occasionally getting bigger winners on sudden price runs.
Another trader who focuses solely on trading trends might take lots of small losses to find a good one. Their win rate may be low but they can still be immensely profitable by keeping their reward to risk ratio very, very large.
Obviously in those cases being knocked out of a trailing trade early could be extremely detrimental to overall expectancy and profitability. For those traders having more breathing room on a stop would be required.
You Can't Bank Every Possible Tick
As for my own approach, I'm not exactly ecstatic about missing out on the extra profit potential. That said, I'm also not overly concerned about it. It will happen with my methodology at times as I protect solid profits already in place. I still know the numbers will work out well in the end over dozens of trades.
I don't need to catch huge waves regularly to be profitable. In fact, just catching the odd one here and there as an outlier is enough for fantastic results.
The bottom line is that I'm happy with the trading outcome and overall day as long as I traded my plan, managed the trade based on objective market information (rather than emotion) and my trading expectancy remains strongly positive.
Just as there's no use crying over spilled milk, there's no use getting upset about missing a handful of points. It isn't the first time it's happened nor will it be the last!