Intermediate Trading Mistakes: Not Using Index Price for Stops

A trading formality killed my open position today and this time it was no "fault" of my own... well, I am learning that it's always my fault for not preparing correctly so rather than getting pissed about it I have to add a new rule to my trading today. Got stopped out for breakeven when that - technically - should not have happened.

The issue is the angsty overreaction of futures markets!

I mainly use coinbase BTC-USD charts to take positions on APEX, as I have had good experiences with it. Coinbase price data seems stable and meaningful, target zones respond well and there is enough volume to make moves legit. I also dislike the tether shenanigans so I opt for USD pairs to get my bearings on BTC. Coinbase is also gang territory, so a lot of focus and attention is directed there, making it more of a heavy tanker than a jumpy surfing board.

The issue is that the BTC-USD futures price on APEX is never congruent with the list (index) price of BTC in general. This makes it necessary to adjust my entries and stops by doing math on the spot, usually adding 0.1% or so on top of the index price. And I have done that quite automatically lately.

Well, what caught my freakin' brave position (that I was super proud of) off-guard today is that the trigger for my stop was linked to the futures price (Apex calls it "Last price"). And that swings way more wildly than the index price. The "last price" is a sometimes overemotional representation of the actual BTC price, jeopardizing breakeven stops more readily.

The APEX index price is an algamation of different BTC-USD prices off different exchanges but at least it's way more stable than the "last" (futures) price. The swings only seem to occur when there are actual swings in the market, not when over-emotionality scares too many futures traders into closing their position and triggering a cascade move in the futures price. The move that should not have happened today went 0.5% further, just enough to stop me out. And then reverse, naturally. To lull me back in, but NO SIR ;)

Well, at least it gives me an opportunity to practice one of my other hard-earned trading wisdoms today: If you are pissed about how a trade turned out - WALK AWAY and find your center again!

And a meaningful alarm set for later, when this current situation and price zone has sorted itself out. Check!

If I went back in now it would be pure revenge trading, which - wisdom taught me - is not a good idea. Distance to the market counters this magnificently!

The lesson today then is simple: From now on, only use the index price for triggering stops - even when the futures price is hundreds of dollars beyond the index price, the hope being that the premium will not drastically change until my breakeven is safe.

I have the hope that my positions won't be accidentally stopped out through emotional swings in the futures, and it should also make it easier to put a stop in the first place as "index price" is the default for triggering stops on APEX. It's easier to enter interface-wise.

Since this is the second time this happened to me this week... a trading rule has to come out of it.

The first time hurt a lot, a brave short on my part that got stopped out not by actual index price swings but by an emotional futures swing. And that "robbed" my short position this week, which would have been glorious. And now the long position is also toast!

There is also a real grandmaster realization on the horizon I am not yet ready for: Voluntarily closing the position and reentering at the same (presumably safe) level I originally entered. Trading my break-even stop for a proactive actual reentry, trusting the futures market will overreact.

But I'm not there yet, ahahaha. So it's index price for me from here on out.

The lessons keep coming but at least I feel it's all leading somewhere. Time to forget everything and be present when the alarms sound, even if it takes days. Not before. Until then it's break time. Whether I like it or not. Patience is the prime trading rule for me.

Posted Using InLeo Alpha