Trading Thoughts - What a Failed Trade Signals

I was watching a webinar by Andy Carlsen called "Tight Stop Trading for Gold, Crude Oil, and E-Mini Russell" on TraderKingdom.com.  In the webinar, he discussed his day trading and showed his charts.  He mentioned that sometimes his trade entries result in a failure, but this failure often leads to a failure continuation trade.  This was a very interesting concept that I never really considered before.

Most of the time we will trade our systems, make our entries, then exit our positions.  Sometimes this results in a profit, and sometimes it results in a loss.  After this process is complete, we start over again and look for another entry.  The failure continuation trade is interesting because it uses the failure of the original signal as a signal itself to reverse the position.  In the webinar, the original signal would quickly fail for a small loss, but the position would be reversed and often lead to a winning trade.  Rarely was there a failure of the original signal followed by a failure of the failure continuation trade.

This is just an interesting twist to add to a system and something extra to evaluate.  I have read countless times that it is important to be a nimble trader and not get married to a position.  The failure continuation trade can help solve this issue.  When the original position is complete, can you squeeze out more profit by reversing direction?  Of course this would not be applicable to symmetric systems that are always in the market, long or short.  Perhaps you have a system that is not profitable, but then you can evaluate a failure continuation trade to couple with the system to potentially turn it into a profitable system.

I guess it is important to remember that a trade is not over until it's over...