The failure rate of traders who decide to take on this profession in a full time capacity is very high. The vast majority blow up their trading capital within the first couple of years. And sometimes within months.
Then it's back to the day job.
Trading can be a humbling experience. It's not for the faint of heart. Nor for the risk taker. The adrenaline junkie. Or the impulsive who may have issues applying discipline.
We often hear the term 'Natural Athlete'. Or natural golfer, footballer or tennis player. Yet what about a 'Natural Trader'? You may have heard the term used in regards to a small subset of successful traders. Yet in reality, human beings are not made to trade!
Often trading requires us to go against our natural instincts and emotions. For this reason the simple act of trading successfully is difficult for the majority.
In most jobs we can take, or be in, control. We can use our education and intellect. Or apply logic and problem solving skills to create solutions and therefore rewards.
Yet, when trading, these characteristics and intrinsic drivers are not going to make you a better trader.
In Part 2 of our series last week, we focused on defining price action correctly.
This week let's identify aspects of price action that often get overlooked.
The first are some additions to knowing when a market is trending. The second aligns understanding the four market stages we often talk about at The Chartist which will put you right in the zone as a trader.
It's hard to deny that you'll never make a large profit by taking a small profit.
Jesse Livermore, possibly the world's most famous speculator, made one of the more frequently cited quotes in the business...
“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”
Last week we looked at what can influence price action , specifically zones of historical support and resistance across various time frames. We also discussed moving averages as a form of dynamic support and resistance.
This week we'll look at the basic definitions of price action. This may seem simplistic yet you'd be shocked how often traders attempt to trade the wrong type of price action.
Here at The Chartist we're big proponents of Elliott Wave Theory, to our minds the best and earliest identifier of trends.
In our Chart Research services we often discuss impulsive and corrective price action.
Unbeknownst to most, the world's greatest investor, Warren Buffett, is actually a mean reversion investor. He buys companies well below their respective 'fair value' then waits for them to return to that valuation or higher. He will tend to only sell a company if it's price rises well above it's value. Unfortunately two issues arise. Firstly, 99.5% of the population will not wait 10-years for a company to turn around and revert to its fair value. And secondly, he bases his decisions on pure fundamentals and copious amounts of discretionary input.