Volume 8
Psychology screws up everything


Now, that’s one of my more colorful openers, if you’ll permit a small hubris or two. Let’s examine my scalping ruleset in more detail.

First, I never enter a scalp unless three points of data are informing it. As you know, I have been using the ORB 15 call or put triggers, the 34 EMA, VWAP, and volume. If recent strong flow has just come through the BlackBoxStocks options flow system, then even better. Sometimes news and strong sentiment can be strong informers as well. But let’s slow down and look at those things.

Second, people enter differently with the ORB. The best case, I think, is to enter on a retest. That is when the ORB put trigger is broken, and then price drifts back up to the trigger level. If this re-test occurs with low volume, that is a good situation. Then, after retesting the put trigger, if the price action breaks downward with volume, that is when I have the most success.

Here is an example of a re-test:

So, if you notice light volume on the travel back up to the put trigger, a rejection off the trigger, and larger volume coming in as it falls away from the trigger…you are in a good entry place (typically!). Also, if the initial ORB break happens with MEGA volume, I tend to jump in at that point as well. However, I really like to wait for retest. And if retest doesn’t happen and you miss the entry, c'est la vie. There will be more trades. And that is one of my entry data points.

I also like to use the 34 EMA as an entry if possible. If, on a put scalp, the 34 is breached near the put trigger, that can add to the confidence in my entry.

The same goes for VWAP. And, lately, I have been studying VWAP / 34 crossovers. In my experience, that can help inform a trade as well.

Finally: King Volume. If volume isn’t present, I am less inclined to enter a scalp. I want them to move quickly so I can profit and get out quickly. If big volume shows up with all the other elements above, I am in 9/10 times.

And then it’s watching price action and volume and perhaps the 34 as resistance to cue my exit.

And, to review, I typically don’t want to exit until two, perhaps three, contrary candles open and close above the 34. Those have proven useful rules for ORB scalping. So, keeping those things in mind, look at the chart below:

What do you notice about the green BTO (buy-to-open) oval? That’s right. 1) it hit a perfect ORB 15 retest AND the 34EMA held as resistance at the same time. Two very good reasons to enter this put trade. It had everything but massive volume. But that was enough. I entered a .4 delta 1dte put with the intent of scalping it with a 34 resistance breach as my exit.

Yes, I know.

Look at my red STC exit oval.

Yes, I know.

Why did I exit here? My criteria are clearly absent. Why would I do such a thing?

Well, I felt the massive BrainFire urge that I had to exit right then and there, of course. Everything depended on it.

Let’s talk about that.

The thing with TSLA is that if you are new to scalping, don’t trade TSLA. Watch it for a while learn about it. That is what I have been doing. Then paper trade it a time or three. And when you do enter into TSLA, low #dte scalps, the speed of price fluctuation is phenomenal. In popular trading parlance, “Tesla will rip your face off.”

This is not an overstatement.

And, at such an expensive UL price, and at .4 delta or higher, the price action just blazes. It can move up or down 30% of your contract price in a matter of seconds. You have to be extremely quick on the draw. It is among the most lighting of lightning!

Again, I am still learning it…so, be aware, I am no seasoned TSLA vet. Not in the least. However, I am lucky enough to be learning from some amazing mentors at BlackBoxStocks.

And I have been having success with it as of late and this trade is noteworthy to examine in this column’s context because it features what I call a “psychology bail.”

A psychology bail is when your emotions take over (either fear or greed), and you exit a trade to either secure profits or losses without any real chart data informing it. In the case of this trade, I made the mistake of glancing at my P&L at the bottom of that massive red candle right before the retest upon which I exited prematurely.

It was a massive gain, and the P&L drop that occurred over the retest (low-volume retest I might add), awakened the Fear Monster. I was worried about losing the profits so I saw my finger hit the sell at market button, the order filled immediately, and that was it.

Then I sat in my stupid trading chair, watched the ensuing massive red candles with massive accompanying volume, and felt like a moron. I would have made so much more, and…to boot…a clear entry was present down at the bottom of the hill. And…even more poignantly…my pre-planned exit (breach of the 34) would have kept me in the trade longer, and much more profitably.

So beware the BrainFire. Honor your rules. I didn’t do that on this scalp, and it cost me a good chunk of change.

So, if I had been able to control the Fear Monster, let’s examine that more logical exit down below, shaded orange on the chart.

Examine the portion of the chart below. Look at the volume bars a few candles before my hasty psychology bail exit:

Volume is dropping. That was likely not serious buying. Alas, I had seen the P&L and was afraid of losing those profits so the rising price action spooked me and I was out.

Now, look at the volume on the red bars a few minutes after my exit. That is some serious volume, and had I stayed in the trade I would have definitely made it further down the hill and pocketed more cash.

At that point, there is some erratic volume and some odd candles, so who knows if I would have had the presence of mind to stay in all the way until the 34 was breached. However, if I would have…it would have been a huge win.

So, know that you are not alone when you have trouble following your exit plan. Sometimes it is hard to push the button at the right point on a winning trade. As much as we all know it, it is difficult to follow our trade rules 100% of the time. Keep working on your trade discipline it is the thing that will help you advance and grow as a trader.

And, avoid the Psychology Bail whenever possible. That BrainFire comes out of nowhere, takes over your logical reasoning, and burns down the world.

Keep your fire extinguisher handy.

Be well, and class dismissed!

Tempus Fugit…only two more volumes in this series to come!

Thank you for reading, and if you enjoy this column, drop me a note on Twitter and let me know! I would appreciate it.
River is on Twitter @ GreatRvr His blog is at www.renegadequest.com