Every trader knows the frustration of entering a position only to see it move the wrong way.
You’ve done all the research, the technical setup looks strong, and you’ve chosen your entry level carefully. Yet almost as soon as the trade goes live, the market turns around and heads in the opposite direction.
Sometimes, you’ve simply entered the trade a little early. The move you anticipated eventually plays out – but only after the market tests your patience and resilience.
Other times, the trade is just plain wrong.
Knowing the difference is one of the most important skills a trader can develop. It can also be the most difficult. Traders often try to convince themselves they were just “early” even after the rationale behind a trade has disappeared.
It’s something I’ve seen throughout my career. Instead of analyzing the trade rationally, traders can let emotion take over and start defending the position.
And the longer they hold on, the more determined they become to prove their original thesis was correct.
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Consider a trader who sees a stock fall sharply. The Relative Strength Index (RSI) – a momentum indicator – enters oversold territory. So they buy a call option expecting a rebound.
But instead of bouncing straight away, the stock drifts lower over the following days. It’s a classic example of where it’s easy to become confused – do you give the trade more room or cut your losses?
A stock always works according to its own timetable. It can remain oversold for some time, particularly when selling pressure is strong or the broader market is under pressure.
Sometimes a final wave of selling flushes out the last sellers. That’s often what sparks the reversal. Under those circumstances, a little patience may be justified – provided the original setup remains intact.
But there has to be a limit. That’s why before entering any trade, I want to know what would prove my idea wrong.
That could be a specific price level. So, for example, if I buy a stock expecting support at the $100 level to hold, a decisive and sustained break below could invalidate my trade.
The same applies if momentum continues to deteriorate or too much time passes without the expected move developing. As traders, we can’t afford to leave our capital tied up indefinitely in a trade going nowhere.
If a key reason for the trade changes, reassess it honestly. Don’t just defend it.
Of course, there’s no problem giving a solid trade setup time to develop. Some of my better trades have initially moved against me before turning around.
But patience only makes sense when it forms part of a plan. Without a clear plan, it can be easy to hide behind “being patient” rather than stepping up and taking a loss.
Before you enter a trade, answer three questions: How long will you give it? How much will you risk? And what would prove you wrong?
If the key price level holds, momentum begins stabilizing, and the broader conditions remain supportive, you might simply be early. In that case, remaining patient could still be the right decision.
But what if support breaks, momentum keeps fading, or new information cuts against your thesis? Then the market is likely telling you you’re wrong.
Taking a loss isn’t failure – it’s the cost of protecting your capital. It keeps you in the game for the next opportunity.
As a trader, your job isn’t to prove that you were right all along. It’s to respond objectively as the price action and evidence change.
Sometimes that requires being patient. And other times it means accepting your loss and moving on. The real skill is determining what the evidence is showing you.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
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