You may have heard people say or write that most people who trade tend to lose money. This may be true, but what is more important is why those people lose money. There are lots of traders who do profit in the markets. So, what is the biggest difference between those who make money and those who lose? The simplest difference that I have observed is getting a trading education and simplicity.
To be successful in any endeavor, you need to be properly trained in that field. You wouldn’t visit a doctor who read a book or internet articles to learn how to operate, would you? What about trusting your vehicle to a mechanic who had only read about brake work?
However, people seem to think that they can be successful in trading the markets by reading a book or viewing websites. This is completely ridiculous! Those who trade for major firms have gone through extensive training programs, and you need to invest in a trading education as well if you hope to be consistently profitable.
Simplicity is another key to profitability in the markets. Another reason so many traders fail is because they overcomplicate their trading. They incorrectly believe that if they apply multiple technical indicators to their charts, they will have a higher chance for making money.
Those traders often rely on technical indicators for signals to help identify turning points in the prices of both the markets and stocks. In fact, many people rely on them as the basis for their software to tell them when to buy or sell. There is a major problem with trading in only this manner. While it is true that a signal from a technical indicator can foretell a reversal in price, it can also signal a pause in price before resumption of trend. A trader who solely relies on those signals for their trading decisions will often take trades that are stopped out for a loss.
So, what should a trader do? Obviously, they need to look at supply and demand and price action as a major decision maker for trading or investing. If you are a regular reader of these articles, you will know how successful traders like Sam Seiden, Gabe Velasquez, Rick Wright, Don Dawson and others emphasize using the levels rather than indicators for decision making.
When most think of the market trends, they tend to think of only two directions, up or down. However, there is another direction the markets can take and that is sideways. Imagine if you were in the lobby of a 40-story building with no elevator. Now, if I told you that there was $1 million in a briefcase at the top of the building that you could have if you climbed the stairs, what would you do? You would start climbing, of course! Most of us would tire at some point and need to rest. Would you stop climbing and go down stairs to rest? Of course not, you would stay at the highest level you had reached and wait until you gathered strength to resume climbing.
Prices will often move sideways in a strong trend for a rest as well. Prices rise due to aggressive buyers pushing prices higher. When prices have risen too high, many potential buyers will back away as price has become too expensive. When they see that no one is selling to make the price cheaper, they will resume in the buying for fear that they will miss out on profits. This pause will cause many traders who are already in the stock to book profits too early for fear of a reversal that never comes. It may also tempt traders into unwarranted shorts as they try to pick the top of the markets.
Watch the price action as you come away from those overbought/oversold situations. Prices may simply pause and move sideways at those areas in order to work off the indication and allow more traders to enter into the trend. As with real estate, the key is location. An overbought indication at supply is one to heed as is an oversold at strong demand. Other indications may be false and lead to over trading.
So use the indicators as they are intended, as a decision support tool for your trading on supply and demand. If you try to depend on them for your entries and exits, you will make bad trades leading to great losses. To learn more on how to analyze price properly, attend a course at the Online Trading Academy center nearest you, we offer comprehensive trading education for beginners to advanced traders.
On a personal note, I am writing this article safely from my hotel room in Minneapolis, MN before I teach a course at Online Trading Academy’s center here. I arrived early since my condo was under mandatory evacuations from hurricane Irma. By the time this article is published, the hurricane should have passed through Florida and the damage will be known.
I was fortunate enough to have left early and my condo should be ok since it is hurricane resistant. But there are many people who will not be ok. Just like the recovery efforts from hurricane Harvey in Houston, the people in Florida will need your help. Please donate what you can, time or money to those who are less fortunate and will likely be dealing with huge financial and emotional distress. Thank you.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Bitcoin price extends retreat from $69K as old whales shift their holdings to new whales
Bitcoin price continues to move further away from the $69,000 threshold, gaining ground as BTC bulls hope for a retest of the $73,777 peak. This is because of the general assumption that clearing this blockade would set the tone for a reach higher, marking a new all-time high.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.
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