Day Trading Exits are easier with Multiple Contracts

The other night I was trading wheat and found myself long 4 contracts in an erratic trading session.

(Get used to me talking about trading at night. In Australia, the main Chicago session for grains starts well after midnight. Hence the name of this website.)

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Sadly, I’d missed the first great breakout to the downside, and felt that the days lows had been made. Eventually I went long at about 944 with a target of around 954. I entered this trade during the eleventh candle on the chart.

Now the first thing to notice is that the very best thing I could have done is automated my exit and gone to bed!  This is the strategy recommended in my eBook whereby I would have entered a stop loss order at about 942 , a limit order at 954 and a market order to exit 30 seconds before the end of the day’s session. The orders are linked in a One Cancels Other group so that only one of them ever executes.

However, on this evening I did not take my own advice, and settled down to watch the progress of the trade.

As you can see, pretty early early on there was an exhilarating spike up to 951.75 followed by a distressing decline right back down to 944.5.Then we were off to the races again with a move up to 953, only to have our hopes dashed again as price declined to 946. Finally, after much sideways action there’s another burst up to 955 before a calamitous decline into the close.

I don’t know about you, but I can’t sit and watch a session like this!

I still say the best way is to automate your exits and walk away. What you don’t see, you don’t stress about. But if you must watch, there is something else you can do.

In this instance, I was long four contracts. When that first happy spike came, I sold a couple of them just over 50. Now, even if price declined and hit my stop for the other two contracts at 942, I’d still be in the black for the day.

Once I’ve done this, I quite enjoy watching the session. I know I can’t lose and there’s a chance of quite a big win, which is what happened in this case.

Of course, I’ve given away some profit. If I had held on I could have sold all four contracts at 954 instead of dumping two of them cheaper. But that’s a price I am happy to pay to reduce the stress of trading.

Anyway, trading is all about managing risk. The stop might have been hit today, and if I had taken no action I would have been down about a dozen points (allowing for slippage which is endemic in the wheat market). By taking the action I did, I ensured a profit of 6-8 points, with the possibility of an overall profit of around 30 points. So, without being prescriptive here, my advice to you is to trade a market where you can afford to enter positions with multiple contracts, then carefully consider what your exit strategy is going to be.

Keep in mind that you don’t have to sell all your positions at once, a point that is often forgotten in the heat of battle.

For that matter, you don’t have to buy all your positions at once either, but that’s a discussion for another day.

 

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