We trade in markets that are out of our control. Yet we pass opinion as if it were gospel truth! Some of us have, over the course of our journeys, come across a strategy that has had some level of success (success is primarily subjective, of course). But the harsh truth is that we are merely speculators.
On the retail side of things (our side), all we do is try to line the odds in our favour (trading with the trend, perhaps). That is all we CAN do. Everything we do outside that is speculation based solely on opinion.
When I came to this reality, I swiftly dropped the habit of trying to predict where price is going. At the end of the day, the trader that is successful (in my opinion, sorry), is the one who enters a low risk position and gets a sizeable return. It is as simple as that. The trader who tries to tell where price is going next may not necessarily profit from that. Price can still move against said trader and stop out for a loss before moving in their direction!
The more important thing is to be able to say WHAT YOU WILL DO WHEN THE MARKET GETS TO A PRICE LEVEL. That is all. It doesn't matter what popular opinion is at the time. There is no emotional attachment to the trade. I just decide that for example, at 1.134*, I will short the Euro against the Dollar. Now, you can have as much confluence to suggest otherwise. The fact of the matter is my order is already in. I have what I consider to be a low risk, high probability and potentially high reward trade. I have my entry point, stop loss and profit target in place.
Of course, this is my perception of the market. Yours is different. And so it should be. It is all a matter of perspective. The problem is that most of our judgement is clouded by ego and market sentiment. Remember that just because everyone is moving in a direction doesn't mean it is the right direction. It is not the direction of the wind that moves the boat – it is the set of its sail. You set your sails depending on where you want to be – not where sentiment suggests.
I use the example of Crude Oil last week. Crude has taking a battering for months and months. So it is no surprise that when a news report was due, most traders expected the glut to continue. And they were right. The news was negative. But if you looked at the charts, the price of Crude rallied 10%! Crazy, right? Well, no. This is a game of perception. Your belief system will create whatever illusion you want it to. Someone must sell for you to buy, and vice versa. Regardless of what the news is.
Too many traders are trying to trade with the momentum or the breakout. And who can blame them? Every broker and textbook teacher tells them news and sentiment is fair, transparent and gives you a level playing field because we all get news at the same time. But you can get the news a day before and still be on the losing side. That is the curse of the retail trader! We are the mercy of the REAL market. We do not know how the market perceives news and I can tell you it is not always how we do.
So we can all be wrong. Our perception of what is happening may not be reality. I often find myself locking horns with other traders over what to do (buy or sell) at any given time, t. And this comes from a good place. I mean no disrespect. I only aim to make everyone profitable. But when I go back to read my comments (which I often do, as a check on my self), I come across in a very negative light. I just sound cocky. I perceive pure sarcasm and condescension.
I am able to perceive turning points in the market with some level of accuracy but that does not give me the right to pass my opinion on any trading instrument as gospel. Over the past 3 months, I have learnt that our perception is our reality. So it is unfair to force your reality on others because regardless of what strategies we use, we can all make money from the markets if we stick to the following rules;
1. Buy low. Sell high**. Rather than trying to jump on a moving train, you could just go to the terminal and join it when it starts the route again! Sure, this requires patience. But you will ensure that your remains aren't splattered all over the tracks.
2. Risk only what you are willing to lose. If your trade gets filled and you can't take your eyes off the pip count, you're doing it wrong. When you go shopping and see an item you like, you check the price tag. If it's more than you can afford, you put it down for a cheaper alternative. Trading gives us an advantage to reduce our money risk while having the trade we want.
3. Be willing to lose. It's the only way you can be in a trade! You can't make money unless you risk something. If you do not want risk, leave your capital in a savings account. Don't focus on not losing - focus on losing small while maximising return.
4. Risk little each time. Live to fight another day. Risking 10% on every trade will bankrupt you very quickly. After all, we are mere speculators. The market is a ruthless place.
5. Stick to YOUR plan. That means having a plan to begin with. What's the point of doing this if you lack discipline? Trader XYZ may have a good reason to buy EURUSD at 1.134 but my plan is to sell. We can both be successful.
6. Aim for a suitable profit margin (therefore healthy reward in relation to risk). If you are risking $1 on a trade, make sure the chart is offering more than $1 back. If your plan says "only take trades that offer 3:1 return or greater", then for no reason should you be taking less. 3:1 return meaning you only need 30% success to be profitable!
Trading is simple. The mentality required to trade successfully is what kills most enthusiasts. Only when we move from emotional to rule-based trading do we fully gain control over our trading success. Cut out sentiment and see the market for what it really is - a playing field for the bulls and the bears. Price is the ball.
Have a successful trading month.
* This is not trading advice. Trade responsibly and know the risk of your investments before entering them. Trading leveraged products can result in losses that exceed your deposits.
** Low and high are fully relative terms. Buying USDCAD at 1.34 may not be low. But it is, relative to where price has been.