Being whipsawed out of a trend, but the trend carries on...

So I'm sure that what I'm on about is a very common situation for most traders.

You look at the charts things look perfect for a trend. So you enter the trade and it starts going well. Then suddenly it hits a big spike and your stop loss is hit and you are out of the trend. Yet the trend you anticipated continues and continues.

My question is what do you do? You get back on your horse, re-enter the position go back onto the trend and hope it doesn't happen again? OR Do you walk away? You have already had your fingers burnt once on that trend, don't do it again.

I'm confused

If an entry signal follows the retracement, enter, but consider how the recent volatility might add to the 'noise' of your chosen instrument - might need to widen stop and adjust money per point to account for this. The cautious will wait for the extreme preceding the retracement to be breached before entering. Note this is a new entry, not a re-entry, so all the due diligence will apply again, from square 1.

Certainly, I would recommend -
pay no attention to cash lost or gained on a stop being hit as far as it affects the next trade on the same chart - it doesn't (the market has no memory)
don't double up / down to get back something you've lost
seeking another instrument with a more dependable trend on its chart
notice the s/r levels the retracement will have illuminated, but don't regard them as armco.

Sensible stop placement depends on how you have entered the trend, for eg;

a. after a pullback to potential sbr/rbs and timed entry on the t/f below
b. via a breakout of a previous hi/lo in the trend or some other such b/o of something
d. via close of a thrust candle
c. randomly

if a. stop would be sensibly placed above the potential sbr/rbs, if b. stop should probably be under the last fractal swing that preceeded the b/o, if c. stop is sensibly placed above/below the thrust candle or at least at 61.8% and above of it, and if d. - no idea as entry technique is not specific.

I am not sure that if stopped out I would just arbitrarily re-enter in the trend direction - this smacks of 'revenge' trading, I would look for the next hi-probability trading opportunity to do so, howsoever you determine that - ie your trading edge.

G/L

bbmac said:

c. randomly

Click to expand...

Well random entries (and exits), are as good a place to start as any, but I'm perhaps a bit biased

If the spike closes back near the open of the bar, ignore it as if it had not happened because the market decided to see what stops there were at that level and take them out. Ask yourself what the trend was before the spike and carry on as before. If the next bar goes below the spikey bar (if you are bearish), go in that direction.

Take a look at previous spikes and see if you agree with me. If not, don't do it, of course! Nevertheless, I think that I am right, with a few exceprions.