The Trade Failure Alert
Most people are familiar with the oft used trading phrase.. “Let your Winners Run – but Cut your Losers Quickly…” and what most traders get out of this is – Go for a target that is 2-3 times greater than the risk of your stop, i.e if a trade is running in your favor.. let it go, but strictly guard against and limit how far the trade can go back past your entry. This is a step in the right direction, however if we leave it at that then we are still dealing with sort of a 50/50 bet equation, that the trade will at least go equal distance in our favor – that we have set for our stop. You still have a rather large “finger-crossing” outcome at this point. Sure traders can make this ratio work but there is a way we can FINE-TUNE things even more to skew the odds in our favor and that is to cut losers even MORE QUICKLY. The problem isn’t catching nice high traction moves in our favor.. but giving too much back when things don’t go our way. Anything we can do to cut this down even further can increase our profit potential over the series.
Once we are in a trade with our targets and stops set we may receive a Trade Failure Alert in the main alert box. The System is detecting that the current price action may begin to move against our trade and that it may be time to PLAY DEFENSE.
A Trade Failure Alert will by issued by the system if there are imminent signs of technical failure for the current trade. Think of it as an early warning sign that your FULL STOP may get hit if you do not take action.
Responding To Failure Alerts
Lets take a look at one of the ways we can respond to a Trade Failure Alert and attempt to shave down our risk even more. The process is detailed but once you get the sequence down it will become second nature to employ in rapid fashion. In this way you can take your risk control to a whole new level of expertise and begin to really skew the odds in your favor. There will be times that even the best entries off the best setups will end up starting to fizzle and reverse on us. If we do nothing and the trade runs quickly against us we end up with a full stop out.. something we like to hold down to a bare minimum. The only good way to deal with this is through avoidance using planned rapid counter measures.
The counter maneuvers will vary slightly based on the number of tiers in your trade configuration and the number of contracts employed. Lets take a look at the steps in trade management for a 2 tiered, 2 contract position and then we can extrapolate off of that. Lets say that you are in a 2 contract trade using our standard 2 tiered scalp configuration, i.e. 1 contract comes off at +0.75 or 3 ticks and the 2nd contract target is at +1.25 points. The stop is our standard -1.5 point stop. When the system issues a Failure Alert we can take action in the following sequence.
Step #1. Immediately slide your first 3-tick delta target down to your entry price. Step #2. Slide your full stop at or near the failure point price alerted in the software. So you have moved target 1 to entry and pulled full stop up to failure area. At this point the trade will play out in various scenarios that will unfold. The first is that price will trade back through your entry and take out 1/2 of the position without a loss on the delta target order that you moved. This effectively cuts your risk immediately in half. Now the 2nd half of the trade can either run in your favor or move back against your even tighter stop. Step #3. If the trade begins to build steam again in your favor you can pull your remaining exit (that was at your original +1.25 target) down to 2-3 ticks for quick clean exit or you can opt to play the remainder for a runner if the trade conditions look to be improving back in your favor. If the 2nd half of the trade does not begin to move in your favor but instead finally fizzles back into the Failure Point zone you will end up with a very minor stop-out on half the position in addition to shaving roughly half off the full stop out distance. (NOTE: An more advanced method for stop placement that I came up with is to split your stops and have them placed separately at 6 ticks and 7 ticks or -1.50 and -1.75 – this is for ease of maneuvering)
In the end, the only way to increase your success rate in trading and squeeze out even more profits is through fine-tuning the odds and probabilities and pushing them to their limits. The 1st big advancement in fine-tuning is simply Trading off the Power E-mini Automated System Signals which present you with a super high degree of built-in precision on every trade. The 2nd way is to use our specific entry confirmation sequence employing the 1 tick trigger move followed by the 12-Hull Confirmation after receiving system signals. The 3rd method as described above on this page, is to hyper-cut your losers quickly and cut them down ever further instead of just watching them run against you to hit your full stops.
How This Affects Your Bottom Line
You will see two immediate benefits in using this gorilla-style tactical approach to preventing full stop outs. One is that you will simply reduce the number of full-stops that you experience decreasing your overall draw-down over the series. The second is that it helps prevent you from hitting your max draw-down limit for the day which forces you to stop trading for the remainder of the session. In other words, it can keep you in the game longer intra-day and gives you more chances to get into a trade that goes on to be a runner. Catching just one good runner can turn the tide completely on how you will finish the day. Final bit of information here is that about 50% of the time, trades that get a failure alert will still go on to become winners. The technicals suddenly shift back in our favor and the trade follows through. If you cut your position in half at your entry but are able stay in the remainder of the trade without price moving back through the failure point… then you can stay in the game and attempt to play the rest of the trade as the system is directing you.