Take a stop, stick to the plan

Today was one of those days that just extended much further than most expected. The continuation was fuelled by stops in a low volume environment.

My first trade was a long scalp at the open, target of Tuesdays high. All well and good.

Then the market drifted down slowly towards the range fill, and then picking up momentum to fill the gap.

For me this was a nice long setup, we had drifted down steadily with minimal pullbacks I expected buyers to step in and push the market back up towards the open. I positioned myself long and watched.

The market popped a touch allowing me to scale a small batch and then slam……. it reversed hard and pushed right back through the low. I took a 20pt stop on 3/4 size, undoing the mornings work and putting me deep into the red, ouch!

It happens and that’s what stops are for, the best setup can turn against you and without adequate protection one bad trade can wipe you out. Don’t let that happen to you.

So I watched, reframing the market now as a trending market and as such was cautious with my counter trend plays.

I focused on the tape and each support level we came to, I didn’t see any significant buying, no candle tails were forming, this was turning ugly. It looked as if lots of trapped longs were running for the door at once and no fresh buyers were there to soak up the supply.

The several day range broke down and the next target looked like 10400 CASH. That was a long way still.

So I had 2 plans now. Wait for a counter trend move to get short on OR wait for an exhaustion move around a good support level.

I didn’t mind which, but the exhaustion was the one that panned out. A move can be overdone and overextended but that doesn’t matter until the supply/demand balance shifts.

If you’ve read any of my prior posts you’ll know that I always look for a final push or a swing point at around 5pm GMT, if I see this and exhaustion at a key level I’ll often take a counter trend play.

This time we got it, a very high volume flush, right on 5pm.

I went long @ 10346 YM (10396 Cash) 31 contracts (£100pp), NB: for non UK readers I use spreadbetting to trade as well as futures, it’s the same thing in essence except your price is based on the cash price, and your “bet” is in pounds per point. You “win” your stake multiplied by the points gained or lost. In this case £100pounds per point is the equivalent to about 31 contracts at a USDGBP rate of 1.56. I use IG Index.

The market tried to make another push lower and I was ready to take yet another stop, but this time buyers stepped up to the plate. I saw the exact tape buying I wanted to see earlier and was tempted to add to my position. I didn’t, probably still thinking of the earlier stop!

The market started to find buyers for the first time all day, if my theory that the excessive selling was longs running for the door then this could very easily run right back into the mid point of the earlier range.

I scaled in batches, wanting to make sure my risk was managed on this counter trend move yet leaving me in a position to hold onto a core long for the push back up I really expected to happen
So my scales were +9, +10, +12, +14, +20, +24, +35, +60, +71 with a final exit just over the 10500 cash level for +105.

There was no way I was letting a good trade like this get away with just a 10pt gain. One of my weaker trading attributes is holding positions, but in this case I had a target in sight, a scaling plan and it played out perfectly.

This sort of size was unusual for me, however the risk was very quantifiable and acceptable for this kind of great setup.
Was I prepared to take another stop? Yes of course? Would I have liked it? No way!!?

If I didn’t get chance to scale any and had taken the full 20pt stop on then I would have been wincing!. But that’s why I scale on any early push in my direction, to reduce the risk ands that’s why I have honed my tape reading skills through my 9 years of experience to enable me to do that.

It’s rare for me to take a full stop with no scale I must have seriously misread it or been caught on news. But it does happen and it will happen, and you need to be prepared and allow for it in your trading plan and adjust your position size to suit.