Why I Don't Chase Trades

The Missed Russell Trade

I thought it was worth sharing a recent example of a missed trade and the intentional decision not to chase it after the breakout. Sometimes I miss a trade.  I either misread the news failure event, or in fact that event never happened but the market goes the way the crowded COT would indicate anyway.  Of course, I hate it when this happens.  But I am not going to compound the mistake by adding the possibility of another one. 

Recently I was very upset I missed the long Russell trade where positioning was max crowded and a long trade was set up as Speculators net-short position was at an extreme level (green shaded area in the chart below).  But if I chased it after the initial move, how would I size it?  If sized at what would have been the original size, my risk would be much larger.  If I sized it smaller to account for the large move from where the stop should be, the return/risk would seem very small.  As it turns out, had I done anything to chase the trade, it would now be losing money, and I would be more upset now than I was originally for missing the trade.  I don’t need this in my life.  I miss a trade, I miss it.  I move on.  There is always another risk/reward opportunity in the future.

This type of mindset is critical for long term success as a trader and the sooner you are able to accept and acknowledge that missed trades are part of the process, the sooner you are able to focus on what is important: risk management, discipline and process. On to the next one…

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Thanks,

Jason Shapiro & The CMR Team

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