Knowing when to Quit

Video Transcription:

Hello traders. Welcome to the Scalping course and the first module introduction to scalping. In this lesson we are going to go through a very important topic when it comes to scalping and that is the danger behind it, not knowing when to quit. We are going to talk about not knowing when to quit whether you are in profit or whether you are in a losing day. Let me tell you something it is very similar to keep trading and not quitting in both cases.

Now let’s go through the lesson and let’s talk a little bit more about it, okay? Now the first danger with scalping is revenge trading and I think we have mentioned revenge trading in previous lessons, but here we are going to explain what it really is. By explaining to you what it really is, I think you are going to agree with me that if you don’t control it, it might actually be the reason that your account is all gone by the end of the week. So revenge trading is simply entering a trade on the opposite direction of the one that you got stopped out of on a loss.

The danger with scalping

Let me explain this to you in other words. Let’s say that you go long on a position, okay? And you get stopped out, so you decide to go short because you think that the market is going to go down, okay? And then you get stopped out again. That’s two losing trades in a row. Now if you don’t control your emotions you can end up revenge trading your account out and here is a little example for you to understand what revenge trading is. You can see that here we have hit a clear base of support, so we decide to go long after this candle closes and this blue line and our stop loss should go below the low of this move to the down side, okay?

So this is a very nice long set-up with a very nice risk to reward ratio; let’s say 5 pips for a 15 pip win if we are targeting the high of the move. What price does is that it goes up and then stops us out, okay? We get stopped out on a loss, we get a little bit emotional and we wait for a couple of candles to see if the price is going down. Then we see that the price continues to the downside, but we don’t have a clear set-up but because we let our emotions step in, we decide to go short right here at this blue line with our stops above this high which is as you can see not a very good short set-up, okay?

Our stop should go all the way down here and our entry should be when this low gets taken but that’s not the case. We got stopped out on a long and then when the price continued to go down we decided to short this market and the chase moved down in a revenge trade and the market just stopped us out again on a loss. This can happen over and over and over again if you don’t control your emotions. This is what revenge trading is and in scalping it’s even more dangerous because it moves complete very fast and you have a lot of opportunities to do it throughout your sessions so in this course we are going to teach you how to control your emotions and how to be a disciplined scalper and not to revenge trade. So be careful with the first danger which is revenge trading.

The second danger, I’m sorry, is overtrading your account. Overtrading is a big problem with scalpers and it can be done whenever you are in profits or in a losing day, okay? Whether you are winning or in profits that day, you can overtrade your account and if you are losing, you can certainly overtrade it. Well, overtrading your account is not the same as revenge trading because revenge trading is just getting in on a… well, getting in and chasing the move after you get stopped out. Overtrading is taking a lot of very imprecise and sketchy set-ups that you otherwise wouldn’t take because you are only looking for high probability set-ups. When you are in profits and you overtrade, you risk to give all your profits back.

In this case, it would be very hard to control your emotions or to control emotional trading and further losses may occur. Now, this means, just imagine, imagine yourselves that you are 40 pips up in a day and you have one losing trade of 10 pips and then you have another losing trade of 15 pips. And because you lost more than half that of what you made, emotions kick in and you start taking positions here and there that are not completely profitable just to chase your losses back and you start overtrading your account. What can happen and what will certainly happen is that you will lose all of your profits and then give back some more making it a losing day. When this happens, let me tell you that it’s very hard to control your emotions and the only thing you can do is just step up and walk away from your computer. And when you are not in profits and you start overtrading your account, emotional trading takes place and you trade larger than you should and take positions that you shouldn’t encouraging massive losses most of the times.

This is when you are actually having a losing day. Just imagine that you have lost five trades in a row and you are down 60 pips and emotions kick in and you start taking bad positions and you start trading larger than you should, you start overtrading your account. The end result of this can only be a massive loss of your equity. So there are two dangers with scalping. The first one is revenge trading and the second one is overtrading.

Now that we know what the dangers behind scalping are, I am going to teach you how to control them and how to become a great scalper. Now scalping can be very dangerous for a non-disciplined trader and this is why in this course before even going through the actual trading and methods, we are going to give you the rules you should always follow. And this is how this course is different from the others. We are going to give you the psychological tools first and then we are going to let you in on the actual methods and trading as systems because it’s very hard and for an undisciplined trader it can be very dangerous to just start scalping without knowing how to avoid these actual dangers. So, here are the rules of a scalper. After two losing trades in a row, take a moment to cool off, okay? This is important and you should do it. If you are trading, if you are starting your session and you have two losing trades in a row, take a walk, take five minutes, go have a coffee and then come back, okay? You need a moment to cool off. After four losing trades in a row, you should quit for the day and this rule is here to avoid you overtrading your account.

The first rule is here to avoid you to start revenge trading. Now, you should always have a daily goal set in mind. This goal should be measured in points or pips or ticks and not dollars. It depends on the instruments you trade. And the reason why we don’t want dollar goals is because not everyone has the same account size and not everybody is going to be trading with the same position size. So the actual profits are going to be different from trader to trader. But if we set goals in pips or points, it doesn’t matter what your account size is, what matters is how many points or pips you have to make in order for you to stop trading.

So if you are a Forex trader, I think that a goal between 50 to 70 pips is a very good goal. This would mean that if you trade five days of the week and if your goal is 50 pips, you are going to be making 250 pips per week or 1000 pips per month, okay? Even if you trade one full lot, that’s $10,000 in one month. Only taking 50 pips per day, okay? And if you are future’s trader, you can put your daily goal between 30 to 50 ticks and what you are going to be making depends on the instrument because you know that a take on the [inaudible 00:10:01] is 25 cents and a tick on crude is 1 cent. For all of you future traders out there, I think that a 30 to 50 tick daily goal is a very achievable goal.

Now once you hit your daily target, you should quit for the day. This rule is here to avoid you from giving back your daily profit and continuing to grow that account. You know that that is what we want to do here, we want to grow our account one trade at a time. And if you are in profits but you haven’t hit your daily target, at the end of the overlap or at the end of your session, you should quit. It doesn’t matter if you are 10 pips in profit. If there is no liquidity and the volume dries-up, you should not be trading, well, you should not be scalping. Now, this is how you are going to avoid all the dangers behind scalping and further on this course, I am going to teach you how to actually make money on the market.

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