The Real Skill Is Knowing How To Manage It
An example of a missed potential trade in NUF (Nufarm)
This month has been lit up with tradeable news, yet most of the feedback from traders sounds like regret rather than reward.
I feel the same. The disappointment in not capitalising fully is almost more painful than losing itself.
The more time I spend in this game, the more I realise that exit management is one of the most crucial skills. You could throw darts and make money so long as you are disciplined enough to cut losses short and manage the upside. Cliche but true.
Time and time again, the heuristic holds → “the best trades go from the start.” With this in place, it is imperative to sit back and let the trade play out.
I am reminded of a moment on the 10th March 2020, during the height of COVID. This was a period of exceptional volatility with the XJO falling 7.3% the previous day. We gapped down a further 4%, and it was all looking very grim. However, my colleague at the desk had a playbook for this day and put on a broad basket-buy programme. It all worked from the start. The futures market ripped, which confirmed the trade. Instead of micro-managing, he knew this was the moment to fully maximise. So what did he do? He left the desk at 10.30 am and decided to commute back home. He didn’t want to press a button. He knew that left to his own devices, he would override the system.
By the end of the day, this trader put up $1m in profits.
With enough time and reps watching setups, it becomes overwhelmingly clear when a trade is working in your favour. This is the 20% of trades that will make up 80% of the P/L.
Now I am not saying to be all Jesse Livermore and go fishing to sit tight when right. What I am suggesting is to internalise the price action that confirms the heuristic, and build firm exit rules to manage to the best of your abilities.
Reasons to Sell
Big catalysts need price and/or time to play out.
SMB Capital coined the phrase “reasons to sell” when managing a bigger trend trade that is working. Some of these examples could include:
Time: a minimum holding period, time intervals through the day, or even overnight.
Trend change: a break of prior bar lows, a move below a trailing average, or a lower low through a prior inflection point.
Price extension causing an unsustainable trend: a % move above vwap or a volatility band.
Volume: a climax in volume that is significantly above prior volume bars, signalling a capitulation point.
Thesis change: breaking news or a headline that runs counter to the trade idea.
You could even use a blended approach of these factors.
An important point to stress is that each strategy will require different timeframes, nuances, and rules. They are designed to capture divergent edges.
What doesn’t stand up to validity or scrutiny are soft technical targets, generic support/resistance lines, or some imaginary Elliott wave projections. Are they repeatable? Do you think the institutional players care about this? Are they repeatable?
Testing and refining these rules is where the hard work is done. However, sometimes it is not the plan itself that fails - it’s us when we choose not to honour it.
Examine the trigger
As a discretionary trader, I’ve often found myself overriding the very rules I’ve developed through years of experience and repetition.
Part of the problem may be due to several alternative inputs leading to increasing complexity and cognitive load. This contributes to “mistakes” or subpar execution in the moment. The solution here is to be more specific and to simplify.
The other issue is due to an underlying trigger. For instance, a fast move in a stock going your way cues the desire to lock in some profits → “see profit, take profit”. It feels nice to be winning so quickly, and the ego wants to be rewarded. This signal initiates the habit. I believe this is where the real work needs to be done to address the underlying cue that triggers a behaviour pattern.
A trade write-up in NUF from last week illustrates these points more succinctly. From here, I target specific areas I need to work on to get better.
A trade example in NUF 21/5/25
-Catalyst: Earnings update
NUF reported 1H25 underlying NPAT well below expectations at $38.5m on an abysmal performance in Seed tech. Revenue of $1,811m vs. BPe $1,911m; Operating EBITDA of $205.9m vs BPe $248.3m and consensus $239.5m. The shortfall at revenue and EBITDA is entirely linked to the Seed technologies platform, where EBITDA fell -46% YOY. Cashflow and balance sheet: Operating cash outflow of -$472.8m compares to an outflow of -$218.9m in 1H24; Net leverage ratio of 4.5x is well ahead of the street. Outlook: (1) Seed tech is expected to be down $20m YOY in 2H25e and implies a FY25e Seed contribution of ~$28m EBITDA below BPe of $112m and VA of $103m. (2) Exploring structures for the Seed tech business that may result in divestment; 3) several uncertainties in 2H25e, including tariffs and dry conditions in Australia.”
Conclusion: it’s not good people!
-Variables:
Daily has rallied into the top end of the range. The market is caught out.
Shortbase has fallen from 8% in 2024 to 1% last. The shorts have given up fighting this, which makes the trade less crowded.
Stale liquidity. A 200k bid left on the market at 380 from the previous day. They have not reacted to the fresh news. Absent this liquidity, the opening price would likely have been significantly lower and thinner.
-Execution Options:
Morning drive gap and go. Take volume early. It can be a more illiquid name, so have to be proactive.
If the gap is too excessive, wait for consolidation breaks or a failed rally.
-What did I do:
Open: Gap down was -12.5% on volume of 325k. This may feel like a big gap, but the delta of the miss is so big AND the stale liquidity provided an opportunity. The best trades are often the hardest to get into. Not many traders willing to chase this = better edge?
Entry: Gap and goes. I automated the algo to enter on the open. Just get me in, and then I’ll let price action tell me. I added another 10k into 355 bid but missed one key spot to go for it.
Management: I did feel calm and was trying to be patient, but the first break into mid-30s was so fast that I defaulted to taking some off. It was 1/5th of my position, which was way more than my system rules. I knew straight away that I was early, but I was still scaling out on every down move. The reality is I only had 10k residual or 20% of my original position on the first clear turn bar out of 300 come 11 am. Bottom line, I was out of 50% of my position by 10.15 am, which is just not good enough!
Trend trade: There were no blocks or major prints through the morning. This opens up a trend play to close as the seller is not fulfilled and hasn’t accessed real flow. Only way to get out is to hit the market. This catalyst is so big it needs time. The stock holds below 300, and then I spotted a clear 290 refresh seller. Re-shorted around this seller and held core to close.
-Key takeaways
What is the worst that can happen? I am in this seat to take risks in the biggest catalysts. I was concerned of an early trap given the gap down. However, just accept the risk and cut if wrong. At worst, I lose 15/20c. Who cares in the big scheme of things if I catch the big trends?
Perhaps the best trades are the hardest to get into. The seller who needs to get out is forced to take down into a thin and extended stock.
The best trades go from the start. When I see this price action, do nothing! The best catalysts need price and/or time. To fill the need for a reward, instigate a 1/8th cover rule - in this way, it does no damage to my bigger position. That first cover is always too early.
-Better next time:
Exits: The obvious improvement remains exit management when it is working - must maximise these. Hold position longer in time, wait for a turn above prior bar highs or a clear volume capitulation. These are rules I have emphasized over and over, but just not executed. I only captured 49% of the available trend, and the full-size profit at close was $39k vs my actual realized. The solution is to break my position into 2 parcels and create just one exit rule for each parcel vs lots of discretionary inputs. Furthermore, I know the cue that triggers my behaviour pattern. Increase self-awareness of this cue and sit with it. Defer to the 1/8th rule.
Size: Hit 50k sizing goal given liquidity of stock, but the jugular was another 50k momo adds into the 50 and 40 bid early when working via hotkeys. It was so clear on the tape, especially into that 50 bidder. All the major volume was getting done into the bids = someone wants out. When ahead, press the advantage.
Tech solutions: None needed. Had all the information in front of me before opening.
-Chart:
First covers are just woeful and taking too much off the table. The rest of the exits were much more structured and planned after the first mistake
Invariably, I can always be adding into the area where I first cover!!
Idealised:
A highly idealised trail-style exit system based on the prior volume bar highs. The reality is that the available liquidity will lead to meaningful slippage on a turn, but the point of the exercise is to frame a method for holding until a possible trend change.
Daily
Final Thoughts
This game is all about how to manage and maximise the rare opportunities. They always come, so best be prepared.
Examine rules and nuances to better capture the trend. Invariably, it is our own human emotions that override a system. This is where the true hard work needs to be done to put up the necessary guardrails.
I have examined my cues that lead to negative behavius patterns above.
What are yours?