Do you scratch trades? By scratching, I don’t mean rubbing your trade aggressively. It’s taking the trade off when things are working out. Usually, we exit the trade in a scratch at or very close to entry. No gain, no loss – a scratch trade.
Here’s a good example of a scratch trade from this morning’s trading:
Example of a Scratch Trade
I came into trading this morning later than normal. I felt rushed, didn’t do my normal morning routine. Underneath it all, I felt the stress to “catch-up.”
My mind immediately saw an apex. This is highlighted by the blue trend lines forming a triangle. My analysis was for a drop in the market. We had upthrusted yesterday’s high (and multiple day highs) and then tested. I wasn’t at my trading desk for the test, but saw the apex forming. I took a short right in the middle of the apex as it was closing.
This can be a prime entry location in the Wyckoff Method. An apex or hinge indicates a move is coming soon. We are on the “springboard.”
You can see the market didn’t take a dive off the springboard. It just traded sideways. After about 35 minutes or so of flat movement, I gave up the trade (black arrow) and scratched out. No gain no loss.
As I was “catching up,” I saw why the market was sideways: FOMC meeting today! Because I was late, I didn’t check for news and reports — an obvious disadvantage. Typically, FOMC days are low volatility with an upside bias during the morning session. Not an environment in which I want to be short.
Fortunately, when I recognized my mistake I cut the trade. Scratching a trade should never be looked upon as a weak play. Scratching a trade is a power move you can take when you are wrong about the market. It’s your backup, your “Plan B.” Having the attitude that you can scratch a trade that isn’t working is highly beneficial. Scratching allows you to exit a poor trade gracefully and preserve your capital for the better trades to come.