Saturday, February 11, 2012

I understand the setups, but am unable to trade

Many traders have contacted me privately and mentioned that while they understand the setups and can recognize them post-market or often real-time, they are unable to trade them. Some of it is due to being in a counter-position but a lot of it due to various psychological reasons.

Some of the symptoms and reasons are:
  1. Freezing/unable to pull the trigger: This is due to fear of being wrong.
  2. Impulse/Chasing: Freezing often leads to chasing, i.e. entering where you should be exiting. This is fear of being left out. Late entries mid-bar fall into this category.
  3. Being shaken out: You havent mentally accepted your risk.
  4. Unable to hold, exiting early: You are not confident of your read.
  5. Revenge trading: Emotionally upset at loss, want to win right now!
  6. Fading a strong trend instead of trading with trend: Perfectionists fall for this since they want the market to validate their genius ability to predict where the market turns exactly.
  7. Letting a winner turn loser: Caused by greed and high expectations.
  8. Scaling into a losing position: Caused by the need to be right. Trader will continue to scale in until the pain of losing money is greater than pain of being wrong.
  9. Reversing your position on a loss: Some setups are reversible, for example failed A2 is usually an indication of two more legs in the new direction. However, this is about reversing your position on any failed trade without knowing if its reversible.

In addition there are poor trading habits that cause lower success rate:
  1. Trading off poor signal bars: Poor signal bars sometimes work but it takes experience to trade them correctly. In particular, they need to have some strengthening factors such as being a BT or being on the ema. Most traders would do best to skip the trade and let it run without you.
  2. Trading BW/OL: Most trades in BW/OL are likely to fail. Yes, some breakouts do occur out of BW but you are usually better off trading the failure or BP of the breakout.
  3. Getting  in before the signal bar triggers: Some traders are anxious to get a better price so they buy before the signal bar triggers.
I would like to address these in various blog posts showing where on the chart such an error may occur and how to avoid them. This will change the format of the charts for a few days. If you made a certain error on a given day, you could let me know and I will add it to the day's chart.

If you have any common mistakes that you would like me to address, just post a comment on this blog post and I will add it to the list.


  1. Thank you so much for addressing these issues as they are probably the key factors facing most of us that are cognizant of the setups but are failing to translate that knowledge to profits. Your work is greatly appreciated and I applaud you for your willingness to help your fellow traders.

  2. A real focus on signal bars i think would be really beneficial. You know the direction the market is going but you end up taking the trades on poor signals and later the strong signal bar appears and your two strikes are over.

    Iam looking forward to these posts. Thank you in advance for all your effort on education.

  3. my continuing problem is getting shaken out of a position when it doesn't take off right away. I use a 6 t SL initially but may creep it up if price doesn't go anywhere. SL is hit and then price resumes.

    1. This comment has been removed by the author.

    2. For anyone who is interested in Cad's answer to Jim's question, you can take a look the link below. In that post, I asked Cad a very similar question and he gave me a great answer. you can see it by clicking the link below and scroll down towards the bottom of the comments.

  4. Hi Cad,
    What is your opinion on trading partners/buddies? Did you start trading under the guidance of a coach or trade with another trader to whom you and him/her helped each other out? Thank you and I appreciate your daily educational postings.

    1. If your styles are similar, it may help. Naturally often one of you will be right and the other will be wrong and some trades will be missed. But understand that its all a part of learning.

      The coach needs to be a good trader AND a good teacher. And their style and risk management should align with you.

    2. Thank you Cad. Your candid answer is sincerely appreciated! Have a good day.

  5. Great list. Look forward to you examining them.

    Here's one of my issues that's not on it: waiting for the textbook setup. I miss a lot becaue of this, even though Al often says, if it resembles the pattern, it likely is the pattern.


  6. Thank you for all your comments. I plan to post answers to these requests in my future posts. The answers are too long to post here.