From time to time I get emails, like this one from Scott, asking about exiting trades with small losses. So it’s about time I recorded a video showing the signs I look for.
“Hi Barry, Lately you’ve been talking about exiting trades with small losses – I would love to see how you make those decisions in real time. Thanks much for all you do for us.” Scott
Although my stop loss on the Emini is 4 points, I find I can mostly wiggle out of a poor trade well before that. My stop loss gets hit when I become stubborn and refuse to see the signs that I’ve got the trend direction wrong. The warnings are always there. Here’s what I look for.
1. Support and Resistance levels on the 500 tick chart
Better Sine Wave: Support Holding Shows Uptrend
Focus on the 500 tick chart (my lowest timeframe chart) – that will give you the quickest feedback even though is can be a little noisy. In a downtrend the Support levels on Better Sine Wave will be overshot and price will bounce down straight off Resistance levels. The opposite is true for uptrends.
So on Friday’s Short trade shown in the video, when the Resistance levels start to get overshot and then the Support levels hold and price immediately bounces off – the Emini was showing it still had strength and the uptrend was not over.
2. Professional activity on the 500 tick chart
Better Pro Am: Professionals Buying Dips Shows Uptrend
Again on the 500 tick chart, Better Pro Am initially confirmed a Short trade – Professional bars were being broken to the downside and there were RAMBO patterns showing Amateurs hoping for an upside breakout.
Then a couple of blue Professional bars appeared on two dips down. Their Lows held and these Professional bars got broken to the upside. This showed Professionals buying the dip and again, the uptrend was not over.
So there you go, that’s what I look for on the 500 tick chart. And thank you for the kind comments:
“‘When to Exit’ may have been the best video you have ever posted. Thank you for helping with keeping losses small. I’ve always stayed in the trade until the 4 point stop or I see a setup for the opposite direction of my trade. I like your more definitive rules better.” Gregg I.
Here’s the full transcript of the video above …
Hope you’re having a great weekend. I want to talk about losses in the video today. This is an email I got from Scott the other day: “Lately, you’ve been talking about exiting trades with small losses. I would love to see how you make those decisions in real time. Thanks much for all you do for us, Scott.”
Scott’s email is typical. From time to time I do get emails like this and I’m surprised I’ve not recorded a video on taking small losses instead of being taken out at your stop before, so it’s well overdue, putting a video like this on the site.
So, Friday we had a good example. I had a good trade – I thought was going to be a winner. It turned out to be a loser. Got out with a one point loss instead of being taken out at my stop. I want to walk you through that and talk to you about what I was seeing and how I made that decision to exit early.
You might know I use a 4 point stop on all of my Emini trades, but it’s fairly rare I get taken out of my stop. It’s only when I’m being really belligerent that I just refuse to see what’s happening in the market and get taken out at my stop. Normally you can see that the trade is not working out well in advance and exit with something between a 1 and a 2 point loss instead of waiting for the 4 point loss on your.
Here is the trade on Friday’s activity. We had all of this overnight activity. Here’s the close on Thursday and the open on Friday. We had all of this “Is the deal on or off?” and the market was winging around overnight. This is not an unusual set up where a change in trend was likely to take place. To me it looked like a fairly good trade.
This is the 1,500 tick bar chart. We have the open of the day and I say always wait for the exhaustion during the full liquidity of the day for the professionals to reverse and go the other way, then look for a reversal trade. It’s coming up to 10 am in the morning up here on the right edge. We’ve had the exhaustion patterns here and we’ve had the first bearish divergence.
We’ve got some blue professional bars coming at the highs and this little test back up with amateur bars. Then we put in a pull back level. The pull back level quickly gets broken and we break to the downside. It wasn’t a clean pull back to end a trend signal. The market was so weak, we just started to fall through that pull back support level straight into a down trend and I was just waiting for a decent entry.
The clue to a decent entry on a trade like this is to wait for the cyclical turn to start to come in. So the exhaustion pattern comes in here just showing the strength of the selling during that initial move. We know that there’s people getting out of this trade, getting short and there’s quite a lot of selling going on because we drop down to 86. So, we dropped four to five points in this move. Now, I’ve been waiting patiently for a push back up for this entry and what I see on my charts is amateur up bars back into the break down levels, support potentially becoming resistance at this point and the market’s starting to roll over.
Better Sine Wave is starting to signal and you can just see that little white dot. That’s Better Sine Wave rolling over. So, I jumped in at this point to go short. What happens after that is the market just hangs around at that level. We have a little blue professional bar come in. We break the highs of the blue professional bar and the market races away to new highs.
I was in short at 88.25 just into this cyclical resistance point here. The market starts to go in my favour initially, but then everything goes wrong. I manage to exit with a one point loss instead of holding through all of this and being taken out on a 4 point loss.
Now, on the higher time frames the 4,500 tick bar chart. We’ve seen all these blue professional bars and the market rolling over here. I’m guessing that this movement up is amateur up bars here and that we’re actually going to roll over at that point, break the support on the 4,500 tick bar chart and move into a trend move here.
It doesn’t work out, but at least I’m seeing amateur up bars here which are suggesting that the move back up is weak. We actually went on to make more blue professional bars, new highs, and we did it again by the end of the day. The market tried to roll over, but the window for rolling over had passed. We’re up at 1 o’clock over here, 11 o’clock is the window I’m looking for a reversal trade. Now, it wasn’t going to roll over at that point. It were going to end on the highs.
So, everything went wrong, but how to exit with only a small loss instead of holding through to your stop loss. The roll over looks good. This is coming into the high on that first move up with the exhaustion patterns. We have on the 500 tick bar chart exhaustion, first bearish divergence, pull back to end of trend. We make cyclical resistance, doesn’t get broken. We break this support level into a down move.
I’m entering, actually this is a tiny little blue professional bar here at 88 and it’s also a cyclical resistance point, here, coming in on the 500 tick bar chart and that’s where I get short. I’m thinking to myself, that’s a good entry short. It’s on a retrace. We got blue professional bars stepping in here to go short. The blue professional bar gets broken to the low on a 500 tick bar chart, which is suggesting that they’re selling at this point, but on the 500 tick bar chart what happens here, I have to sit through some heat.
We got amateur up bars with RAMBO patterns. Again, that doesn’t look too bad. That’s amateur’s buying a potential break out that got wrong footed and we’re potentially rolling back down. We start to roll back down. See another blue professional bar here on the 500 tick bar chart. Let me just zero in a little bit more.
Here we go. The blue professional bar comes in here and, to me, that looks like a u-turn, so the professionals have got short on this move up. It’s pushed a little bit further. We got RAMBO patterns and then I’m thinking they want to get short quickly. At this point here, the blue professional bar comes in and we break the low at that blue professional bar. There we go.
Now, before it starts to race away, here’s a couple of things that we see. Now, we got the three indicators. Better Sine Wave, Better Pro Am, Better Momentum and you start looking for signs that your trade is actually working out. The first thing to look at for me is Better Sine Wave. There is weakness definitely in the market because we’ve dropped below this support level here, but when we came back up and test, this resistance level here actually got broken to the up side.
We have a few little pushes through. We have a close above it. That is not good. It’s showing that there’s still strength in the market here. So, if this were a decent down trend, what you would see is as soon as we bounce off these resistance levels here and here, the market quickly moves into a down move. This is one of the tricks to Better Sine Wave to be able to understand whether you’re in a up trend or a down trend.
Before you get breaks into trend, you will get the support levels or the resistance levels holding and the market quickly moving away from those. This is showing that there’s weakness in the market because we quickly move away from a resistance level down here. Quickly move away down here. As soon as we get a break of a support level, that’s another sign that the market is weak and that we’re heading down. But on the way back up here, the market is starting to break the resistance level here. That’s not good.
If this were a strong down trend, we would have bounced straight off it just like this. Resistance level will print, we’d maybe play with it for a couple of bars, but then we’d move away from it. We would not do this. We’d not hang around. We certainly not close above it.
Then after that I’m still in my trade short thinking this might work out, this might work out. We come down to a support level. The support level holds and we quickly move away from that. Again, not a good sign. That’s showing that there’s still strength in the market here. We’ve broken through resistance. That’s not good. Support level is quickly held. We’ve bounced away from that.
Again, a resistance level comes in, the support level holds. As soon as we’re breaking back above here, that is not good. That’s showing there’s inherent strength in the market because the support levels have held and we’ve not even played with them. We bounce straight off them. We’ve not come through them.
So, that’s the first thing. Better Sine Wave is showing me that at this point here there’s strength in the market and the market’s likely to reverse. So, first thing there. The second one to look at in closer details on these low timeframe charts is Better Pro Am. Better Pro Am will be really helpful.
Initially, we see that. We break the lows of that blue professional bar and so that for me is resting sell orders by the professionals just waiting to get short there in the market initially moves in that direction. The RAMBO patterns look good as well. This little blue professional bar looks good. Looks like they’re trying to sell down, quickly jumping on board the market as a bit of a u-turn.
We have blue professional bars on the way up and on the way down steadily, resting sell orders and then chasing with sell orders pushing it down, but this little blue professional bar then comes in around this support level. The low of that blue professional bar holds. We don’t break below that. We start to break above it.
That’s not good, but it’s only the first one that we’ve seen on the 500 tick bar chart. We then see another RAMBO pattern pushes up and it quickly came away from that RAMBO pattern. So, I’m thinking that’s okay. That’s not too bad. We’re coming away. Then there’s another blue professional bar a little bit higher on this move up and, again, the lows of that blue professional bar do not get broken. It breaks the highs and that’s showing they were buying that little dip.
Those two blue professional bars are not good news. That’s what’s telling me that actually the professionals are buying that little dip at that point there and they’re going to see the market go a little bit higher. That’s the signal to get out. Then you can also see that that pattern with blue professional bars on the dip showed up on the 1,500 tick bar chart here.
So, at that point we’d have these amateur up bars into that turning point here. The next highest timeframe, the 1,500 timeframe, there’s that little sequence of blue professional bars coming in on that dip. So, the low of that blue professional bar didn’t get broken. The highs got broken and all of a sudden we’re coming back through this resistance level and the market’s still gotten strength and it’s still moving up.
For me, those are the two signals to look for. Better Momentum is really showing you the big picture where there’s potential rollover happening in the market and so it’s showing you where this thing is rolling over like here. We did get on the 1,500 an exhaustion pattern on the way down and so that was showing that that we’d maybe run out of sellers at that point, but for me, it’s Better Sine Wave and Better Pro Am that I’m looking at in order to see those little micro moves and its still inherent strength in the marketplace.
Better Pro Am is really helpful. If you see these little pushes down, blue professional bar is coming in and still the market holding and going the other way. That’s not good. They should be coming on into the highs and immediately breaking the lows of those blue professional bars. We got the reverse and the market started to trend up.
The other one is to look for Better Sine Wave. Better Sine Wave will show you when there is still weakness in the market here. As soon as we get the lows holding and we’re breaking these resistance levels at this point here, that’s not good. That’s showing this inherent strength.
So, my suggestion for exiting trades quickly without getting taken out at your stop loss is to look for Better Pro Am and then Better Sine Wave on these low time frames. If they don’t start working in your favour immediately, then just exit. We’re in this really lucky position. These days, brokerage costs for getting in and out position are relatively small. I don’t want to say trivial, but they’re relatively small for trades.
Years ago where you were paying $75 a contract to take a position, you have to hold through a little bit more heat to see if the trade would work out. But these days, the cost of exiting trades is so small you might as well just get out and just wait and see if there’s a better opportunity to enter short. This of course went the other way, just kept on going up for the rest of the day. I didn’t have it in me to take that reversal trade and keep on holding it through the highs.
I’ve made some good money during the first trade of the day. I had another short trade later on which was just returned a quarter point, so I was quite happy with that. Mentally, I was still waiting for this to roll over. When it broke to new highs, it took me by surprise and I just didn’t have it in me to reverse and go long at this point here.
It’s tricky to do that, to actually take a reversal trade like that one when it’s not going in your favor just because I was ready for it to keep on going down and it didn’t. I was thinking maybe there’s a better opportunity to enter short. But as soon as the 11:00 window is passed, the likelihood of reversal is not necessarily there, although it was a short trade later in the day that I took, so going against my rules a little bit.
Anyway, so there we go. Talking about taking small losses instead of being taken out at your stop. Hopefully that video was helpful to you.
Transcript of real-time trade follows …
Short 88 and a quarter. Short 88 and a quarter and would have been nice to get into this short move earlier, but didn’t really have any decent pull back levels. Not exactly what I was looking for. So, 1,500 tick bar chart. Here’s all the exhaustion patterns. Bang, bang, bang. Popping those stops up to 90 and then a little amateur up bar here run zero line, bearish divergence. First bearish divergence since we’re looking for this pull back to end a trend signal.
It didn’t end up with an elegant pull back to our trend. It just sunk all the way through the level. So, come back to that break down level and that’s where I’m getting in because this support level, support becomes resistance on the 500 and the 1,500, both points here. We had a little blue professional bar come in there, so just looking for a re-entry point or a point to get short on this.
This was a little bit explosive just because that was popping out a whole bunch of trailing stops. That’s why it went a little bit run away here, but we should continue on the way down. This exhaustion selling is getting the move going, so it’s just showing the strength of the selling through that first portion of the trade, of the down trend. It’s not over until we see a reading which is fairly decent. About 11,000 at the bottom of this and a nice pull back to end a trend pattern. Support set on 45, but its amateur up bar and just got to hold on and just see a resumption of this trend on the way down.
Whenever this turn around, I think it will because we’re seeing RAMBO patterns and amateur up bars here. Amateur up bars, bang, bang, and then always RAMBO patterns on 500, so we’ve got cyclical resistance and due on 1,500, in on 500.
I know we’re trading against the support level here, but I think this is just an amateur testing up, and then we’ll wrap around and head to new lows. So, doing their best to get their stops run and spike. Stop’s miles away, which I’m happy about, but it’s just taking a while. Maybe one blue professional bar wasn’t enough, but I’d love to see this blue professional bar just hit it and u-turn it and get it going.
Let’s see and there we go. Blue professional bar breaking the lows of it. Come on, let’s get going. Doing a bit of a u-turn, so quickly getting short, but expect it to just hit it and keep going hard so resistance is in on the up bars. Hopefully we’ll take out 84 then support here and then it’s going to do a decent trend move on the way down.
That’s not quite exactly going to plan, but that spike up is a RAMBO pattern and we’re immediately coming back down. This blue professional bar came in and then we just kept on going up. Hoping this is just a fake out, you know, just push it up and we would just all of sudden think “Oh, we’re actually in an up trend”. Everybody’s moving average is roll over or something. If we immediately come back up and that was just a freak me out move.
Okay, there we go. Well, it’s just back in the money, 87 and three quarters, which just bounced to 88 and a quarter. That should be it and continue down. So, resistance coming here. I just got to break the load, this little pivot low here. Then all of a sudden, Okay, blue professional bar. Now, that was on the way up, so they could be resting our sell orders that just got triggered. We need to break here to 77 and a half. Let it go a quarter point, but much more than that, I’m not sure about it.
Eighty-nine and a quarter, loss of one. Now, it’s coming back down. Let’s wait and see. Not going to plan. Blue professional bar is at the lows here and breaking, but the highs. Let’s wait and see. Maybe it’s just got to work itself out, but we’re within the window for changing trends. We’ve had all this weakness come in. That’s getting the move going, so this is just a very weak retrace. Maybe I’ve just been shook out. Well, let’s see. There might be an opportunity to re-enter, but it’s obviously got to work out more energy on the upside.
