WHEN TO TAKE A LOSS: THE CROSSHAIRS HORIZONTAL LINE

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Take a look at the following and tell me what you see:

            __ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __

By itself, this line could represent anything: a bird’s eye view of a highway division line, morse code, an etch-a-sketch line, perforation, doodling.  Add a stock chart, specifically a CROSSHAIRS CHART, and this line takes on a whole new meaning.

Let’s look at two examples: one a short (PUT) play and the other a long (CALL) play using APACHE (APA) as our guide.

THE CROSSHAIRS LOSS LINE SERVES A MAJOR PURPOSE

Contrary to popular opinion, trade exits are more important than trade entries, especially as it relates to when to take a loss.  I certainly do not claim to have THE answer, I just know what works for me and what works for me is a visual line indicating when I should exit a trade. 

Since it is impossible to trade without emotion, this line allows me to control my emotions. When the stock closes below the line I exit the trade. Period.  As long as it stays above that line, I stay in the trade until my profit target is hit. Period.

Where I draw this line-let’s call it the “battle exit” line is based on several factors: 1) where the vertical “battle entry” line is drawn; 2) the larger battlefield terrain chart; 3) areas of support/resistance on the larger chart;  4) the location of the TANKS on the larger chart and 5) MAB.  All of these are included in my Intelligence Report.

CONCLUSION

Whether you trade short, long, or both, you must make a decision about where you are going to take a loss before you enter the battlefield. Part of knowing when to get into a trade is knowing when to get out.   If you do not, you can easily jeopardize your potential success.  Failing, not failure, is an option because not all trades are going to work.  Remember,  even if you lose a few battles along the way winning the war is what really matters.

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