A beautiful day for a flight at Mach 4. You’d have it no other way, as you race across the pure blue sky with your hair on fire and the G-forces pushing your face in ways Botox can only imagine. Everything is great — until it isn’t.
The engine light comes on, you lose power, and now you’re headed for the ground. All you need to do is look down and to the right, and you’ll find a yellow handle that activates the ejector seat. In less than a second, you can save yourself and live to fly another day.
When facing certain danger in the market with a trade, having an automatic ejector seat lever can save your account. Fortunately, you have such a lever in the form of ATM — Advanced Trade Management. Using it properly can mean the difference between survival or a fatal account crash.
A safety lever sitting right in NinjaTrader
Early ejection seats involved a bungee cord, thanks to Everard Calthrop — the early inventor of parachutes. He planted an ejector seat using compressed air — a dicey proposition to say the least, if you were on your way down anyway.
Every day, markets are faced with unexpected events and turmoil that can cause immediate price volatility. If you’re in position during these moments, and you find yourself on the wrong end — it can be the equivalent of having your plane unexpectedly catch fire.
Fortunately, NinjaTrader has a built-in ejection lever in the form of the Advanced Trade Management tool — or ATM. While there are a number of embedded features, this tool automatically places targets and stops on your chart, within your trade.
Simply turn on the Chart Trader feature and you’ll find the ATM tab sitting directly to your right. You don’t have to do a thing once it’s set up — and like the modern-day ejector seat, the results can be account-saving.
Automatic risk mitigation in Brexit-like crashes
One of the more famous videos involving a pilot ejecting from his plane was taken in 2003 during an air show. It was at Mountain Home Air Force Base and the pilot was performing an ‘S’ formation in a Thunderbird.
Pulling back on the stick too soon resulted in not giving himself enough room for the jet to recover from its dive and level out. He pulled the cord and got out less than 2 seconds before impact.
When the market gets spooked and starts to roar or dive — for whatever reason — having a stop that protects you from catastrophic losses is critical. Take the now infamous ‘Brexit’.
When the markets closed that fateful day, early returns coming in looked positive. The ES initially rose and the world breathed a sigh of relief. Then the rest of the results came in — and the rug was pulled. Sure, there were brief pauses — but had you been on the wrong end, you would have gotten your clock cleaned.
Having a stop in place would have kept a loss from turning into an unmitigated disaster.
Pull, click and forget
Pulling the lever on most ejection seats is pretty straightforward: tuck your arm — so it doesn’t get broken in the blast — and pull. The pilot of the Thunderbird executed his ejection perfectly and was able to walk away from the crash.
Setting ATM up simply involves pulling the tab, hitting ‘Custom’ and inserting your ideal stop and target preferences. Keep in mind that the preferences should match your risk/reward ratio. So if you have a risk/reward ratio of 1:2, a 10-stop and 20-target setting (using ticks), with a Time in Force (TIF) of daily would make sense.
Once saved, make sure that ATM strategy is selected before entering a trade. The moment an order is filled, you’ll see your stop and target immediately appear on your chart.
Mavericks don’t live to trade very long
It was Tom Cruise who pulled his jet out of a flat spin, avoided ejecting and saved the day with all kinds of skills in Top Gun. It’s probably worth noting that he did this on his second try… in a movie… and lost his flying partner in the process.
In the dogfight of today’s marketplace, rolling into a trade without a stop in place is asking for trouble in the form of a catastrophic Brexit-like loss. Worse yet, moving the stop back to try and ride out a losing position costs you two very valuable assets: time and capital.
Sure, the capital loss is difficult to swallow. But so is the cost of the missed opportunity that comes from having your capital tied up in the market on an eventual loser. Better to take the safe route, and take the out that ATM affords you.
Mitigate risk, save time, fight another day
You hear about it in the news regularly. Jet crashes, but the pilot ejected safely. Recently an F/A-18 Navy jet crashed near Fallon station. The pilot pulled the lever, rocketed from the plane and was released with minor injuries.
Don’t crash your account when unexpected news hits, and don’t compound a tailspin trade by staying in it. Create a custom ATM setting that matches your preferred risk/reward ratio. Keep that ATM setting locked in place as you contemplate an entry.
Once you’re in the trade, accept the stop that you’ve agreed to from the beginning and don’t pull it back. Take your lumps and eject, living to fly another trade in an account that’s safe from a crash.
Noft Traders offers a Funded Trader Program. To learn more, visit their informational page at NOFT-Traders.com.