Day Trading Strategy has to be Executed Correctly

I have been trading for a long time, and I constantly emphasize the importance of discipline and perfect strategy execution to my students. In the real markets, every little mistake you make usually costs you significant amounts of money. Sometimes you make a "lucky" mistake, but it is a rarity.

Today, my first trade in 2008 was a mistake! After waiting patiently for an opportunity I decided to take a long position if the wheat price broke above 938.75. My normal method of entry is to enter a buy stop order at the breakout level. 

A moment after entering this order, I heard the bell ring on my trading screen and saw that I was short six contracts! I had entered my order in the wrong column and it ended up as a SELL stop order, instead of a BUY stop. As price was still below the target entry level, the Sell was triggered immediately.

So now I was short when I wanted to be long, and I expected price to move up sharply. What to do? Well, one thing NOT to do is accept your error, and hope the short trade works. I set a very tight stop and a limit order at my entry in the hope of getting out flat. In the event, the stop was triggered and I lost an average of .9 points per contract ($270) plus $36.60 brokerage. See the first and third lines in this fill report which record this sorry tale.

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Note, the times are in my local (Australian) times, not the time in Chicago. I was in this trade at 2:30:48 and out at 2:31:50 with a loss of over $300. I could have wished for a less expensive object lesson in the importance of executing my trading strategy perfectly.

However, this example also illustrates another important trait that helps you as a trader. There was a time when I would have beaten myself up for my error, been fearful of losing even more, and closed up shop for the day.

But the fact was that my entry signal was still valid, and in the fast moving day trading market there is no time for self recrimination. I immediately entered the Buy stop order correctly, and it was triggered a minute later at 2:32:38. After a further five minutes my target price was hit and I was out with 2.75 points profit per contract.

While it was good to end up in the black, this was not a satisfactory session. A day trader must minimize losses ruthlessly by cutting short losing positions and reducing trading costs (commissions and slippage) to a minimum. My loss tonight was completely avoidable and it will reduce my win to loss ratio.

You can learn more about my trading methods in my eBook

 

 

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