The market is open today, but most are not in. Tomorrow the US market is closed and Friday it is open only a half day because most will be recovering from a day of gluttony on Thursday, a day set aside for Americans to be thankful for what they have. I’ll get to that in a moment, but now let me answer a question from a reader …
- I think one topic that’s often overlooked but is very important is: “When to scratch a trade, and when not to scratch a trade”. Sometimes such a decision can impact the bottom line significantly. What criteria / factors should one consider, and can you give some scenario examples?
Many thanks Ed! Have a great Thanksgiving holiday!
First, one should always know trade exit points ahead of time, meaning you should have a profit target and a stop predetermined, even if neither is set right away. Now, having said that, I can say this – sometimes trades go flat. The price action just can’t move the price much in either direction. This is “dead money.” If your trade is in dead money territory, you should scratch it and move on to another trade.
Deciding when a trade is dead money depends on what timeframe you have for your trade and even then scratching a trade can be tricky. This is where discipline can be of great service. For example, if you have a three-day frame on your trade, and after three days your trade is still near your entry point (or your exit point for that matter), you might be inclined to think something will change, that you can still make your profit target or you can make some of your loss back. If you have the bank to wait it out, wait it out, but if not, it is best to keep your money working on a regular basis. Scratch the trade.
Ultimately, most every trade takes care of itself. It either closes out at the profit target or it stops out. Both of these points are yours to define. So, define your points and if your trade goes flat, keep in mind a dead money trade will impact your bottom line in that it keeps your money from making more money …
And to you, thank you for your sincere wish, and to all of you who celebrate Thanksgiving, may it be a day rich with family, friends, and food. For those who don’t celebrate Thanksgiving, it might be good to take a moment and reflect on what you have in your life that is rich. Yup! I think that is a good idea.
Happy Thanksgiving all …
Trade in the day; Invest in your life …
