COMMON MISTAKES TRADERS
MAKE AND HOW TO AVOID THEM
It is the age of
the screen based trader, IF you realize where your edge lies. Let’s cover some
common mistakes almost all screen based traders have made at one time or
another during the learning curve.
Time Frames
The smaller the
time frame you trade the less likely you are to succeed. Daytrading is more
difficult than position or swing trading. Everyone wants to “day trade.” That’s
fine, I day trade, most of my clients day trade. BUT, I am always willing and
encourage my clients to be willing to take that day trade into the next time
frame if the opportunity presents itself. The big money and the “easiest” money
is made outside the intraday timeframe. To be consistently successful over the
long term you have to at least occasionally have the big winning trade.
Let’s talk about
intraday trading and intraday timeframes for a minute. One thing that almost
all intraday traders can do to increase their probability of success is to use
a chart duration of nothing less than 5-minutes. 30-minutes is even better. You do not decrease risk by
trading from tick charts or one minute bar charts. You are actually
dramatically increasing your risk because you end up trading nothing but noise
– the normal gyrations and probing up and down that is a characteristic of an
Auction Market. Anyone that thinks they can devine special meaning from every
change in the bid/ask in the ES (or any market) all day is delusional. There is
no edge there!
Go with the
probabilities. Don’t try the “savant” stuff.
Time is the
screen based traders best friend. Don’t make the mistake so many screen based
traders make and turn it into an enemy.
Expectancy
A simple way to
express is that expectancy is that it is probability over the long-term of
having positive results. There are two parts to expectancy. The probability of
the trade working. The relationship of the potential gain if the trade works to
the loss if it doesn’t work.
You can have a
positive expectancy by having a large percentage of winning trades. You can
have a positive expectancy by having fewer winners but larger winning trades.
The focus of
most traders is to try and have a high percentage of winning trades. This is
actually quite easily achieved and is the prevalent method you will see in
trading chat rooms. It also almost always yields net negative results. It
“feels good” to have winning trades. Here is a guaranteed way you can right now
have a bunch of winning trades.
Or, you can do a
little homework the night before, pick out several markets that look promising
with potential reward a multiple of the risk that must be assumed for the
opportunity, wait for those trades to set up and take them. If you take three
or four trades often you will only need one to work to make a net profit.
Sometimes none of them work; sometimes all of them work. Overall this style of
trading has a huge built in margin of error because its essence is to let
profits run and cut losses short with the added advantage of a method that
consistently identifies the opportunities that are most like to offer the high
reward/low risk situation. This isn’t a fairy tale. I have a lot of clients
that do this every day.
No comments:
Post a Comment