Thursday, May 9, 2013
The key to confidence
Many traders are unsure whether to buy or sell. Typically, this presents itself as the trader reversing their position with every loss. When they encounter a market such as the few bars on today's open, they may find themselves getting into may trades and getting chopped up.
Such traders have very little confidence in their ability to judge the overall direction of the market. The ability to recognize if the market is trending or simply in a chop is the basis of being profitable. The market provides different options based on whether its trending.
Therefore the first skill a trader needs to work on is the ability to read market direction. This also includes the ability to know if there is no real direction. The simplest way to get there is to always draw a trendline. When the price moves well beyond your trendline, you should assume the trend has ended but until then, trade only in the trend direction.
Over time, trading in only one direction improves sense of direction. You may then consider adding obvious reversals such as the three push move and obvious TCL OS at b26. When you have confidence in your direction, you will be able to re-enter in the same direction (#3) even when your original entry failed (#2)
Do not be overconfident on initial success. A sense of direction is primary but not a complete set of skills. Entering correctly, estimating stop size, and an ensemble of many other skills make a complete trader. Also be wary of very strong and very weak trends that will test your ability to trade profitably.