“Trading can be a matter of probabilities.
Sometimes you'll be at the right place at the right time; at other times you
won't. That's all right. If you are consumed with perfection and finding the
ultimate trading opportunity, you will often miss the trades that are right in
front of your nose.” – Joe Ross
Developing a Winning Trading Method
There
are repercussions to be experienced when using a certain approach. You have to
think about various market conditions when creating a strategy; otherwise you
would end up being frustrated. So what you need to do is to look for proven and
time-tested trading setups. You would
not only need to create a speculation approach that works in the long run, but
you would also need to use it flawlessly in particular market conditions. This
is what would let you appreciate the merit of such trading approach.
- Your method needs to respect the dominant bias.
Many veterans of the markets who have developed numerous trading
strategies agree that they prefer to pick trades in the direction of the
trend.
- Honestly, it would also be helpful if the method
can detect when the dominant bias would be coming to an end or when it
would no longer be logical to follow it. This is the real secret behind
consistency.
- Define your entry points which stack the odds in
your favor. For example, it is better to buy a pullback in the context of
an uptrend or sell a rally in the context of a downtrend. This allows you
to set optimal stops and targets. Buying a rally in the context of an
uptrend may cause you to get stopped out before the price has the chance
of moving in your favor.
- You must always give yourself an RRR of 1:2 or
1:3. This ensures that you make money with only 40% or less hit rate. Then
if your hit rate is 50% or above, how happy you will be!
- It would be very difficult for you to sustain a
huge roll-down on your account if you risk only 0.5% or 1% per trade. This
also means that your losses are small and easily recovered.
- Of course you continue to trades every new setup
as long as you are winning. When your losses exceed a predetermined
amount, you may stop trading for the day if you are an intraday trader, or
stop trading for the week if you are a swing trader, or stop for the month
if you are a position trader. This is the best way to avoid continuous
losses in a losing streak. By the time you resume trading, it is probable
that you would stumble on a winning streak. For example, I stop trading
for the month if I go down more than 7%.
Conclusion
It is
normal to become emotional after a losing streak. However, veterans remain calm
in a losing streak. They believe in their strategies. They simply know that a
winning streak is around the corner, and they remain faithful to their trading
rules. This has become their second nature, so easy. This is not easy for noobs
who tend to ignore the realities of trading.
Market wizards experience losses triumphantly. You too need to use subtle approaches and
recognize great trading opportunities.
According
to Jack Schwager, if you asked most people to categorize good trades and bad
trades, you would find the answers to be quite simple… If it makes money it’s a
good trade, and if it loses money, it’s a bad trade. That’s not true at all…
His
quote ends this piece:
“Any approach
will give you instances of winning or losing.
If you have an effective approach, you will hopefully make more money
than you lose. If you take a trade that
follows your process exactly (whatever that process may be… fundamental,
technical or otherwise), and if that trade loses money, that was not a bad
trade. It’s only a bad trade if you
deviate from your process and lose money.
I would go further and say that if you deviate from your process and
make money, it’s still a bad trade.
People have to differentiate between trades that are consistent with a
winning strategy, and trades that are inconsistent. That’s the mark of good and bad trades.” (Source: Thoughteconomics.com)
Source: www.tallinex.com
What Super Traders
Don’t Want You To Know: Super Traders
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