Spring is in the air, which means golf and "The Masters". Coming out of long cold winters my friends and colleagues couldn't wait to go out and play 18. A tradition like no other! Of course, weather was so spotty that rounds were cancelled and rescheduled moment to moment. I remember one outing we started a round and knew it was going to rain but we were die-hards and we didn't care. We quoted our favorite Caddy-shack character " the heavy stuff isn't going to come down for awhile yet; I'd keep playing". Even after hearing it a thousand times, we still laughed as we sat in our golf carts soaked and cold.

The club pro said the bad weather would blow over in about an hour and maybe we should head back to the clubhouse and wait. No Way! One guy squinted up at the sky and said, "I think I see a break in the clouds out West". That's all we needed to hear. So we played on and got out to the farthest hole away from the clubhouse and then we saw it; a crack of lightning. My first instinct was to start counting in my head; one-one thousand, two-one thousand. And, then BAM! Thunder so loud it was ear-piercing! I didn't even get past two, so we knew the storm was close. Three of us sprinted back to our golf carts to head in and wouldn't you know one friend wanted to play on. The rest of us knew better and dragged him with us as we raced back to the clubhouse. One minute later the golf course sirens went off and this time we saw lightening hit a tree near the green we where just on. What are we idiots?? At that moment; YEAH!! An hour later, just as the club pro told us earlier, the weather cleared and we went out and finished our r ound, but not before risking our lives.

Why do we hang onto thoughts, ideas and actions even though we know in our gut that it doesn't feel right? I thought of this story when I was working with a client that kept holding onto his losing trades. He is an avid golfer, so I related my golf experience to his GBPUSD trade the other day. In our "1st Hour Adjustment" daily meeting on 3/18/10 (see chart below) we expressed a bias toward the long (buy)-side of the market, but we also stated that it was acting a bit strange in our first support location, so we stressed to use caution at this level (just like in our golf round when the rain was coming down and we knew bad weather was rolling in for about an hour).

My client and I both played the market in the same zone but I covered the idea when it went bad while our client stayed with it even after the market showed the crack of lightning (sound familiar?). He stayed in and you guessed it, as prices plunged, he was forced out for a loss as the risk of staying in longer could have spelled disaster for his account (sound familiar?). Not long after he covered the trade for a loss the bad weather cleared and the market raced higher the rest of the day (sound familiar?). We discuss this every day in our morning meetings that if a storm comes along, weather only one (explained below), get out and get back in after the storm clears.

My advice to the client was that I didn't fault the original long (buy) entry, because it met 3 of our 5 rules (a majority). Prices favored the long side of the GBPUSD during this session as we were above our proprietary Homework Rule (Green Line; click on the chart below for details) and above our proprietary Neutral Line (Red Line on the chart below) and we saw a flip from a downtrend (lower highs and lower lows) to an uptrend (higher highs and higher lows). This gives us a green light to enter long (buy) in the area. I was okay with this, but we teach that you should only weather one storm (prices flip back to a downtrend while you are long). If price action doesn't hit your stop loss and flips back to an uptrend, you weathered one storm. The important thing to remember is that a red flag on this idea is alrea dy raised and if another storm comes along before prices hit your upside objective, the market is telling you to GET OUT!! This is just like our golf story when lightning hit. Run to the clubhouse and wait for the skies to truly clear. The GBPUSD moments later flipped back to an uptrend at the next lower support level, and met 5 out of 5 rules. This time it worked to perfection.

The client lost 50 pips being stubborn. Of course I felt bad, but I stressed the difference in our outcomes was due to the fact that I admitted my loss much earlier when lightning first struck. According to our daily advice price action revealed that this idea was bad after being down only 15 pips (see chart below). After cutting the loss early I still had the financial and mental energy to get back in the market at the lower level, which an hour later netted me 70 pips to help me finish up 55 pips on the day. Keep your head clear, admit the bad trade and get back at it. It will pay dividends!

Click on image to enlarge!

Prosperity is at your fingertips!! All you need to do is grab it!!

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