It happens to the best of us. Nothing we do seems to be right. Well it happens in trading as well. You pick a signal, and the price moves against you, like it knew what you were doing.
1. First, don't worry, it's not you, it is the nature of the markets, that sometimes trends are very small. So what we do, is find the time frame that is picking up the trends and letting us get in on them and stay in them.
2. Second - and this is where I have often been sneaky - outsmart the market. If just as a trend starts, and people jump on, and the big traders reverse on us, knowing they can wrong foot us, then don't do it, instead, do the opposite.
Yes, where there is a buy, do a sell and vice versa. What about stop loss? It's still on the screen, it's the 'TP' and you can to be ultra-cautious, use the stop loss as your profit target and not worry about adding to winning positions.
At the time of writing, I have been talking for weeks about my favourite trades in GBPAUD. I know, you are probably thinking ‘what is the Australian Dollar, and who knows about it?’
I do not trade based on some deep macroeconomic analysis, or being smarter than other people. That’s not it. I ride the coat-tails of others. I let them establish a trend then I copy it and follow it. That’s it.
So how and why do we pick what to trade? The best traders in the world use tools for trade selection. That is all we are doing.
1. Our goal is to make sure we have winners, and profitable trades. We greatly increase our chances of success by ensuring a little preparation. Whilst you can use the indicator on any pair and time-frame because the underlying principle of momentum and multiple indicators, across multiple time-frames and price confirmation obviously holds true, you can also increase your chances of success with a little prep.
2. I find certain currencies a lot easier to trade with smooth trends. Actually the ultimate skill to pick up is spotting smoothly trending pairs with long enough trends which are being consistently picked up.ie the market is simply not wrong-footing us.
Most people wrongly thing trading is about how often you are right. They look for the Holy Grail of being right 90% of the time. Yet they ignore even traders like George Soros are billionaires from being right slightly more than 50% of the time. How is that possible?
Worst still, too many people thing profits come from just picking the right 'risk, reward' ratio. So they will talk wrongly about 'profit targets' and reward to risk ratios. The problem is they are too often misinformed by well-meaning academics and instructors from 'institutes' and 'academies' and not by actual traders - and by actual traders, I mean hedge fund managers, not amateurs.
Of course if you are a beginner, I want you to get used to hitting profits and so take profits (TP) where more advanced traders will add to their winning positions. If you do not add to the big wins, or at the very least let them run and not cap them (see image below) because you are badly taught about risk/reward and profit targets, you will only ever break even in all your trades overall (because you will have 0% big losses, 50% small wins and 50% small losses). And so you will blame your win/loss ratio ie that you are not winning and calling the market right often enough. That is simply wrong.
Look, a coin is right 50-50. And God is right 10/10. So you are going to be 6/10 or 7/10 at best because you will be somewhere between chance and God! It is about how much you make when right, not how often you are God-like!
Whereas, if you let those profitable trades run you will have 40% small losses and 40% small wins and 20% big wins.
So what is the truth about profits and winning?
My mentor, Bill Lipschutz, former Global Head of Forex Trading at Salomon Brothers put it this way in my book, The Mind of a Trader, (Financial Times) - he said it was about how much you make when you win, not how often you win.
Alpesh Patel
