By scratching, I mean getting out at or near where you got in, resulting in little to no loss or gain. When I enter a trade, psychologically that money is gone. I have assumed the outcome of a trade to be a loss, at least initially. This is not because I am pessimistic, but of all of the trades I have ever made, maybe 5% I have not taken any heat or when a trade goes against you. My expectation (there is that word again) of it being a loss relaxes me when I take inevitable heat. This allows me time to let the trade breath or develop.
What is a good scratch and a bad scratch?
First you need to have a plan for entering and exiting a trade. First and foremost have a plan so you know what works the best for you and that situation. When I started and did not know what the hell I was doing, I would take some heat, the trade would get to my price, I would exit (because I feared losing and was happy to scratch). I did not lose anything. The market would go my direction, without me and I was pissed because I “should have” made money. The market would come back to my price I would get in again or get a worse price and get stopped out. Notice the two emotional, irrational thoughts? These can be prevented by having a plan. There needs to be a balance between fear and respect when it comes to trading. That is an individual thing, but your fear of losing needs to be the same when you are in the trade as it is when you planning to execute.
Normally I would not use the losing of capital as bad because it does not have to be bad, but you will never remember the ones you lost. You will be focused on the time it did work or “would of” worked.
A good scratch or any good exit occurs when you execute your plan, you feel uncomfortable in way that makes reacting or making a decision hard, or the market has changed because it has been a long time. If you have a plan, this should remove the pressure from the moment and you can blame your plan and not your decision making. Being unnecessarily uncomfortable while in a trade is a bad thing. It usually means you are losing too much, you don’t have the money to lose, you are not following your plan, you don’t believe in the trade, etc. It is a physiological response to you doing something that is “wrong”. Too much discomfort makes it hard to learn, similar to studying drunk. If/when you lose you are going to lose the lesson or develop a bad habit. A trade that is taking too long to develop can be a good reason to exit. Your focus can wane and at some point there is too much information or conflicting information to react or make a decision.
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