I recently participating in a podcast with J.C. Parets of All Star Trading. If you haven't checked out his series, I suggest you do so. You'll find a wealth of trading perspectives. In my session with J.C., we discussed how the volatility of markets can induce our own emotional and behavioral volatility. An important priority in trading crazy markets is doubling down on our own sanity. That means mentally--and emotionally--rehearsing being wrong on trades so that we are prepared to take the right actions if the stuff hits the fan. As a rule, the more we face the heat of battle, the more we want to keep a cool head. When we *anticipate* the losing trade, we allow ourselves to normalize it emotionally--and that helps us keep the cool head.
Indeed, it's not at all unusual that I will structure a trade that looks like it has momentum in its favor. I put on a price stop in case of reversal, but I also put on a time stop. If the move cannot materialize in a relatively short period of time, momentum on that time is not what I had expected. That itself may disconfirm my idea. Exiting the position for a modest loss can set up a trade the other way. In such cases the loss is a tuition we pay for valuable market education; a fee we fork over for useful information.
When we take the threat out of losing, we open the door to using losses as learning lessons that make us better. That's a great psychology for a crazy market!
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