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January 7 2020 ES Chart
If I sold bar 3 because it is a consecutive big bear bars setup with second one closing on its low, where should I exit after setting my initial stop loss above bar 2?
I'm a beginner and I do not want to scale in as per Al's advice. I don't mind taking losses after I realize that the trade is not going my way.
I was practicing this day in a simulator, and I exited the position after bar 12 (strong bull bar) formed. Should I have exited earlier? When does it make sense to exit earlier, and when does it make sense to hold on to a losing trade?
The general rule is, you exit a trade when a reasonable counter-trend setup appears. In this case, do you see the the blue-boxed buy marked above bar 4 high?
That is where you should exit, and even reverse - that is what Al would recommend. Morning setups, if they fail - make you enough money if you reverse to cover the losses.
Personally, if I don't reverse above bar 4, I would at least exit above bar 6 - bears who sold the bar 3 close got 2 chances to exit BE and now we're getting a bull BO - that is enough for me to believe that the bear premise has changed.
Thank you for sharing your thoughts. I'll keep reversing on reasonable counter trades in my mind.
Do you have general rules on when to hold on to a losing trade?
It is a bit broad, and that is what is covered through the course, the encyclopedia and the daily setups. After a point, it becomes discretionary, at least to me. Everyone has different styles of trading and management, so hard to recommend any general rules.
If I consider you to be an absolute beginner level trader, as I am - where I take only the blue box swing setups and only swing trade and never scalp, do not scale in - the general rule is to get out of a trade is - if you have committed a mistake or if the premise has changed or at the very least, forces strong enough to warrant a change in premise are being created. So, you can keep holding on to a trade(despite losing), if the premise is still valid(unless you are reading PA wrong - betting against a channel for example, seeing constant wedges that are failing) and you have not made any mistake.
There is another scenario, where a change in premise is expected, you get a reasonable reversal setup, as several swing setups are and the market does not flip the always in direction but keeps continuing in the direction of the trend. Personally, I try to identify these situations early, and often get out before letting my full stop get hit.