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3 Common Pitfalls of Active Trading

It’s 3am. You should be sleeping. But instead you are trading the European FX session while simultaneously looking for liquidity in the e-mini S&P’s on Globex. Yes, the 24 hour global market place has created a new paradigm of non-stop action, but this isn’t necessarily good for your sleeping habits or your trading account.

Trying to Beat the High Frequency Traders
The most important point to know about high-frequency trading is that it now dominates the micro-scalping timeframe. If you have been trying to scalp a nickel out of markets with high liquidity on the bid and offer, you have no doubt run into these pesky algos. Often, what they want to do is make the spread by buying and selling for electronic communications network rebates and catch a penny or two in price movement.

So if you are looking to get ECN rebates by buying on the bid and quickly selling on the offer, you are competing against the world’s most powerful computers, and you are likely getting beat by their speed and execution efficiency. Chances are that by constantly jumping in after getting wiggled out, you are now overtrading. If you are able to lengthen your time horizon and lower your position size, you may start to see through the noise of high-frequency trading and hang on for the eventual moves that used to shake you out.



Failing to Analyze your Trading
Whether it’s a winner or a loser, if you’ve clicked the mouse and moved on to your next entry (especially if you are newer trader) without analyzing the results, you are missing an important step.

A winning trade is defined as a trade executed according to the plan of a high probability, clean setup, high reward to risk, an entry, a target and a stop loss. When executed, whether or not the trade makes money, it’s a winning trade. If the objective of the trade is to make money, then one is not focusing on the process of trading.

Instead, that’s focusing on outcomes which are determined by the market. Traders must begin thinking in terms of process: a winning trade is one that’s properly executed. If it’s a high-probability setup, then it’s likely that more trades will make money than lose money. When you are over trading all the focus becomes on “How much did I make,” instead of “Did I trade according to a well-executed plan?”

Trading the Chop
All too often, over active traders are in the market in the middle of a move. Instead of entering a position at the beginning of a trend or getting out as the directional move shows early signs of weakening, they place trades when the markets are moving sideways and lack clear direction. It is hard to make consistent profits during these market conditions. Certain trading tools can help you trade with the trend. One is VantagePoint Intermarket Analysis Software, which produces predictive technical indicators that offer reliable, accurate trend forecasts each day for hundreds of global markets. It is through these leading indicators VantagePoint can provide early clues to traders about trend changes. For active traders, using a tool like VantagePoint can help squash that urge to over trade and help you get some much needed shut eye.

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