Sheila knew she was in trouble, and no matter how long she stared at the monitor, the picture was the same. She had taken a huge hit to her portfolio – 20% in one trade and in one day! It’s not as though she was a complete novice, she had run into this type of issue before. In fact, she had promised herself that she would stop repeating this same mistake; that is, letting her emotions get in the way of her good sense. It all started when she had tracked the YM Emini and had identified an intermediate trend on the daily chart. It had been making higher highs and higher lows for several months, with pullbacks to the moving averages that she was using. Additionally, the price action was pulling back now toward a relevant support level and giving her a signal to go long for the next day. Furthermore, the high-probability signal was made even stronger because the 120-minute time frame showed a distinct demand level at the support line while coinciding with the moving average levels in that same area as well. She felt “strongly” that the price action was going to bounce off these levels. In fact, she “knew” that this was going to happen.
Certainty was already beginning to intrude upon her trade…she just wasn’t aware of it. She placed her limit order to buy 5 contracts at the top of the demand zone and simultaneously put her stop just below the bottom of that same demand zone. When the US markets opened the price action did bounce off of that support-demand level immediately. She felt elated, but a few minutes later it began to fall – precipitously. When it fell, she didn’t react too much, even though she did feel a tinge of anxiety. Unfortunately, it continued to drop and her anxiety continued to rise proportionately. When the price action inched toward her stop she felt a surge of fear so strong that she “reacted” by moving her stop. However, she rational-liesed ( yes, I made that word up and it describes the way that we lie to ourselves at times by rationalizing something that is not true) that there was no problem really, since she knew that the price action would rise. “Hadn’t the trend shown itself to be very powerful,” she thought? Ahh, but the price action continued to drop and twice… Continue Reading
