Short-term trading techniques differ from both day-trading and trend-trading. One of those differences is knowing when to cancel an entry order.
I want to discuss this in more depth; it seems academic, but it's an important point if you want superior trading results.
In this short article, I'll explain why that is.
The validity of short-term support resistance
One of the most underrated aspects of a short-term trading system is knowing when to give up on setup. This can save you a world of pain.
Support and resistance levels, just like food, lose freshness over time.
Markets simply go on to do other things. And the levels respected a few days ago are no longer respected today.
You can see this most clearly with up and down sloping trendlines, and moving averages, where the value is constantly changing.
Horizontal long-term support resistance levels can remain in play for literally decades - $50 silver, 1000 on the Dow, or $12 oil.
But for short-term traders with a time length of trade measured in days, the market is forever changing what levels it sees as important barriers to price.
When to cancel an entry order Tradeneophytes style
Many price action traders won’t do this, but with my own version, Simple Pattern Trading, if an order is placed, it lasts no longer than one whole price bar.
Let's say we have a Long Harami Pin Bar Reversal Strategy on a daily chart. We give that order one day to be trigged, if not then it needs to be cancelled.
Or maybe, I place an entry order after seeing a Harami Inside Bar Strategy on an 8 hour Dow chart; if after 8 hours I'm not in that trade, guess what?
In Simple Pattern Trading, we give our patterns one whole bar to work out, regardless of the timeframe.
This keeps only the freshest of trades signals.
If a market's ready to do something, it will in all likelihood do it quickly.
Sometimes, there won't be a signal before a move begins, in which case we learn to live with it.
If you keep an entry order in the market for days, thinking it's alive and well, you might get lucky on occasion, you might not.
But it’s sloppy money management, and leads to inferior trading results over time.
Having a time limit on how long a setup lasts will keep you away from losing, and dodgy trades.
Therefore, it's important to cancel an entry order if the time limit of that setup is over.
Trading Tip: There is always a new trade around the corner if this one is no longer valid.