This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Chase a Trade and Lose the Edge

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

Whenever a trader "chases" a trade emotion has entered the fray. Once emotion is allowed to affect a trader's decisions the intellect has an unwelcome adversary. That unwelcome adversary can be expected to be the catalyst, if not cause, of poor trade execution. Have too many poor trade executions and the trader will not be successful. Chase a trade and you lose the edge as it goes to the "other guy" who did not have to do any chasing!

The primary reason for chasing is because the trader was not proactive, but rather reactive. That trader was caught "off guard" by either unexpected news or a poor diagnosis of how the market would react to any potentially trade-affecting news once the news became a reality.

Do not confuse being proactive with being what is colloquially called being a pioneer. A trader who is a pioneer is someone who dives into a trade, most times one-way biased and un-hedged with the odds against them. Some traders pioneer trades because they confuse their approach with that of being a contrarian. Pioneering and contrarian trading are mutually exclusive.

The contrarian hedges and moves, while proactively into a trade, they do so in a probing manner. They never go "all in" like the poker playing buffoons we see on the boob tube. Instead they time the odds to being in their favor as they average into the opening up of a trade.

The proactive trader never chases any trade that is about to be opened. They either take a pass if it moves quickly away from their pre-planned price, or they slightly alter the pre-planned price as they average into the trade. They never average into the trade if the opening trade is considered to be too far away (in price) from the pre-planned price. Instead they move on to the next trade that sets up.

Caught off guard is a risk all traders run as nobody can anticipate every outlier that becomes fact. However, the potential for any outlier is most times a known potential. Only the market's reaction to the outlier becoming a reality is in question. Thus, the more the trader studies the market, the news or whatever is thought to be possibly in play, the more the trader will not be caught unaware should the outlier become a market mover.

The only time that it makes trader-sense to chase is when the trade must be closed. When the experienced trader is caught "long and wrong" or "short and getting shorter" the tactic should be one of immediately either closing the trade to cut the loss or hedging it completely. Thus, the risk morphs from being an unknown to one of being 100% controlled, and thus limited and understood.

Chasing a trade is never pleasant and should not be so. Chasing can be avoided if: 1) the trader is proactive; 2) the trader does not allow negative gamma to enter the trade set up; 3) the trader has done the required homework; and 4) chasing is the accepted tactic only when the trader must close the position.

OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.



Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV

Partners Compare Online Brokers

Top Rated Stocks Top Rated Funds Top Rated ETFs