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I was at the Casino last night playing Black Jack and I know there are a lot of similarities between playing cards/gambling and trading. I often get out of trades as the worst time (skunk stops) and as I was watching other people play black jack it dawned on me that a skunk stop is just like taking a bad hit. Imagine taking a hit on your 14 when the dealer is showing a 6. You can't take that hit, taking that hit is just like a skunk stop and exiting at the wrong time.
Sometimes just seeing things different like this can make a big difference, getting out of a trade should only happen when your target is hit, your stop is hit, or when there is a buy/sell signal in the opposite direction of your trade.
Hi Joe,
Well yes, skunks take bad hits, that's how they're ending up there in the middle of the road, between an early exit (what trader expected to happen locally right away didn't) and a wide stop (complete change of premise in the overall context).
It's interesting with early exits though. A trader bails out of a trade quickly when what they expected to happen didn't, even when there's no signal in the opposite direction yet. For example, when taking a reasonable MTR long and expecting good follow through, it should be ok to exit for small loss below the entry bar if the entry or FT bars are bad. I think most traders expect their MTR entry and FT bars to result in a BO and increase the directional probability from 40% to better for them to remains in a swing trade. They are basically looking for start of new trend (the point of taking MTRs). If that's not happening then it should be ok to exit. But it doesn't necessarily mean there's now also a good signal in the opposite direction. More likely the market will continue sideways for a bit longer. What do you think?
That is interesting and think it mostly depends on context as you are pointing out. If you are scalping in a bull channel for instance with no reason to yet get out of your trade, you should stay in unless a good L1 or L2 presents itself. For a MTR you should expect it to work only 40% of the time and if its not doing what you expect then can get out.
On my own side I may be long and my target 5 points away, but i see a fast developing bear bar and then I exit, only to see the bear case for a sell not trigger and price does eventually get to my target. My exit in this case is a "bad hit".
If I am looking at a MTR I often think of a shot clock like in basketball - if it isn't doing what I expect in x amount of time I am probably wrong and should exit (If I am not willing to scale in lower).
Skunk stop is a swing trading concept. For scalps Al would exit far quicker at the slightest hint of trouble or disappointment, and not wait for a signal against him.
You'll frequently hear him say "get out scalp size away from any bar". In a swing trading context that would be a skunk stop. In a scalp context that's a valid exit because counter-trend scalpers shouldn't be making money in a strong trend.
I have it on fairly good authority that “he shoulda looked left.”Well yes, skunks take bad hits, that's how they're ending up there in the middle of the road,
https://www.youtube.com/watch?v=wt-o2xlffWo
(Yes, I believe the term is properly dead skunk stop, and you may recognize some of the lyrics seem familiar. Just Al engaging in a bit of boomer humor, just like my father who still recites this on road trips!)
