What’s the whole strategy behind dummy trades? A high-volatility move followed by a low-volatility consolidation, then if it breaks in the direction of the first move you enter to ride the new expanding volatility move. Entering before the consolidation breaks is dumb, since it could really break either way.

When I sat in my PALM trade, it was the same as if I front-ran a dummy trade! A consolidation can break either way, so if your trade stalls, it’s very risky to stay and wait for the break. I think that’s what you were trying to get through to me, Richard.

Jesse Livermore used to probe the market by sending in huge market orders and watching how the tape reacted. If he sold a big block of shares and the price didn’t give way, he knew there was buying support there. I was trying to read the same kind of thing from PALM’s time and sales, but I only see the transaction. I don’t know if it was from a big seller or buyer. Livermore knew because it was him doing it!

I guess the moral of the story is beware a stalled trade, unless you have more information. Thanks, Richard and Tyro!

Contrast this with stocks where normal behaviour is for a certain amount of up-down gyration. When stocks go down, they don’t go down to 0, and they don’t take 3 seconds to go there. When stocks drop you can sell any time this day, week or month, it just potentially gets more painful. With climbing, if you try to catch yourself you will break bones, dislocate shoulders, or rip off fingers.

When you feel a fall coming in climbing, you push yourself off from the wall so that you drop cleanly. When you feel a fall coming in your stock, you might lighten shares or tighten your stop but you still stay active.

It would be nice if trading was like climbing so that, at the first move down you would bail. It would be clean and simple. Stocks don’t move that way, and they have a lot of noise in their movement, little eddies against the larger current. When you place a trade, you’re picking a direction and a timeframe, and hopefully setting a stop so that you give yourself the opportunity to travel with the current but not bail when the first eddy joggles you around. (Hey, trading as kayaking – there’s a new metaphor! :) )

I’m thinking that you might be looking for multiple exit strategies. The first would be a volatility-based exit (bottom of a previous candle in the Dummy method) and the second might be a time-based exit where you start moving your stoploss up or peeling off shares every 15 minutes that the trade hasn’t moved in your favour. You might also exit the trade entirely if, after 60 minutes, the trade hasn’t moved at least 1R from your entry. (Note that I don’t take Dummy trades so have no idea if these would work, just things you might want to check out.)

As Richard says, stalled trades are problems, regardless of whether they’re profitable or not.

When are your expectations to not make a profit? ;-) I’m not advocating that absolutely any move below your entry should get you out. Just that you shouldn’t sit on a position just because it hasn’t hit your stop yet.

You shouldn’t look for any old excuse to exit a trade, but you shouldn’t hold on to one without confirmation of it being correct, either.

The Phantom book was also written for a longer timeframe than daytrading. It’s a bit of a different animal since we’re quick to make our moves. Lots of “investors” buy and hold on to a losing position for months at a time, which is clearly violating rule#1.