How to deal with Whipsaw in trading

By | January 3, 2018 4:23 pm

A losing trader is in denial. His equity is shrinking, but he continues to jump into trades without analyzing what is going wrong. He keeps switching between markets the way an alcoholic switches between whiskey and cheap wine. An amateur whose mind isn’t strong enough to accept a small loss will eventually take the mother of all losses. A gaping hole in a trading account hurts self-esteem. A single huge loss or a series of bad losses smash a trader against his rock bottom. Most beginners collapse and wash out. The lifetime of an average speculator is measured in months, not years. Whipsaws are the main reason for the trader to bust his account. Whipsaws are part and parcel of market but we should know How to deal with it.

1. Get Comfortable in taking losses
A whipsaw is when you enter a position but get stopped out quickly when the market reverses opposite to your position.  If you are a trend trader this may happen many times in a row in a range bound market.  This can be very frustrating to a trader and it may cause them to completely change their method. But to trick is to keep the Losses small, Do not take big loss in whipsaw period have a loss limit for your account, if breached stop trading to protect your capital.

2. When you catch a Trend, ride it to the end.
Your system must be able to take a position in a trending market, but then also be able to ride that trend to the end.  Most new traders will jump out of trades before they are finished trending because they are scared the market has gone too far and will take back their paper profits.  Let a trailing stop take you out of a trade when the trend is over, and only exit once you are stopped out. How many of you were able to Ride the rally in Graphite India and HEG.


3. After series of losses, stick to your Trading System
A draw down in trading account happens to all traders.  This is where the trader has a long string of losses or an overall losing period.  If you are averaging 50% wins in your trading, you will still have a series of 1o losses at some point in your account.
Don’t change your methods in a  draw down.  If you have tested your system and it works, stick to it and keep taking your entry signals or you will miss that one big trend that pays for all or most of the previous  losses. There is one thing here to remember – sometimes your method has to be adjusted for market volatility or if it is range bound. Part Booking is very helpful in such markets.

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