Scratch Trade

Scratch Trade

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.