One of the hardest lessons to learn is to cut trading losses quickly.
We've all been tempted, novice or experienced trader, to override our systems. We have the desire to avoid a loss.
It's a bad move though.
Sooner rather than later the market will whack you hard. A loss that may even end your trading career!
It's psychology more than intelligence.
In my view trading success is all about 'Mind Over Matter'. In simple terms applying your mind to what matters most, then leaving the rest of the noise behind.
You can have the best strategy on the planet. Yet if your mind and personal psychology are not robust, then you'll be your strategy's weakest link.
You can't back test your psychology. Yet if you are honest with yourself, you can think back to all those losing trades when a lack of discipline was the cause of your losses.
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.
Both aspects are interrelated.
Firstly to define a trend.
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.