Price Action...The Journey Begins
Sounds pretty melodramatic but that's it in a nutshell gang. I'll post some charts here shortly but I wanted to give you guys a breakdown on what I've been doing.
As traders, I think we've all figured out that regardless of how good we think we are, we're always learning. If we ever stop learning or at least being open to new ideas, we might as well quit trading because the market has a tendency to spank us good just when we think we've got it all down pat.
I'm no different than anyone else. I've taken my share of beatings from the market just like everybody has at some point. The catch is this...do we learn from our mistakes and strive to do better? I for one am not the kind who likes to lay down and give up. I get frustrated and I've certainly reached the point where I wanted to give up before...but I always come back to it because I don't like to be beaten. Sometimes we need a break to get our heads screwed back on right and that's perfectly fine...been there myself.
Over a period of time, I've come to have certain revelations about the market. Sometimes they're "Aha!" moments and sometimes they're smaller clues...but all of these play a part in our continuing education as traders.
So, here's revelation #1. It's a big one and I'm sure a lot of folks have come to the same conclusion...price action is the only sure way of telling what's going on in the market...period. You can throw as many indicators and moving averages as you want to at a chart and they all have the same problem...they're subjective, not objective. All indicators and moving averages lag behind price action. They're all designed mathematically to respond to what price action has already done...not what it's going to do.
It's not that they don't have value...they do. But too many times we try to use them as an indication (hence the name "indicators") of what to expect next in price action. Problem is, they just don't cut the mustard, so to speak. Every single indicator you can think of is going to fail and fail miserably at some point if you try to rely on them to tell you what's going to happen next.
How many times have we all stared at an indicator and were absolutely convinced that the price action was going to have to reverse and move the other way...only to watch the price action keep right on going into severe oversold or overbought condition?
How many times have we looked at a moving average and were certain the price would stop dead at that level, only to watch it charge right through like it didn't exist?
We all know the answer to those questions...it happens way too often. Next thing you know, we're hung out to dry in a trade that we can't get out of.
So the first thing I had to do was learn that less is more. Throw out all the fancy indicators and all the dozens of moving averages. Clean up the chart...get it down to the bare bones. I don't think I'll ever get away from some things like the TDI and the quad tunnel. I count those as the most valuable in the arsenal of indicators. But other than that, I discovered that I need to remove the clutter and get down to basics...study the candles. Therein lies the "secret", if there is one, to everything.
Revelation #2...stop averaging in positions. This is a tough one but it boils down to one basic aspect we're all guilty of...trying to guess at tops and bottoms. Stop doing it...it just doesn't add up. When we take a trade, there needs to be a logical reason for taking the trade, a logical reason for a TP target and (here's the big one)...a LOGICAL stop loss. Yes, that's right...we need to be able to take a loss if our trade idea is no longer valid.
I don't like getting stopped out any more than you guys do. It's a pain in the butt. But the bottom line is this...we need to approach trading as a business. When you're in business, you have to expect a certain amount of loss. It's just the cost of doing business.
Name one business that doesn't absorb some kind of loss over a period of time and I'll tell you that the business doesn't exist. Nothing is 100% profitable all the time, especially trading. The problem is, we don't like to be wrong. We want desperately to be right no matter what the cost. We'll hold onto a losing trade a heck of a lot longer than we'll hang onto a winning trade because we keep "hoping" that it'll turn around any minute and let us out of the trade with a profit or at least break even. We wind up adding to a losing position over and over again, sometimes to the degradation of the account as a whole. There's a pro trader that says the two worst drugs a trader can get hooked on are "hopium" and "dopium". Those two don't need any real explanation at this point...LOL!
We need to refine our trading to where we can take one trade at a time on a pair...period. If you have several pairs that you're trading, that's fine. But stick to one trade entry per pair. We need to take the time to analyze the situation, evaluate our entry, our profit target expectations and our stop loss...all before we even pull the trigger on a trade. If you take a trade and then you go back trying to figure out your TP and stop loss, you've already messed up. Think it through...there's always another trade around the corner. If the trade doesn't make logical sense, don't do it. It's that simple. If the trade makes logical sense and you get stopped out, take the loss and move on to the next logical trade setup. Nuff said on that subject.
Revelation #3...don't start your trading day with a bias on the market. This is another big one. We all like to develop opinions on what the market has been doing and what's it likely to continue doing, etc, etc. "The Euro has been down for the last 3 days in a row so it's probably gonna keep falling today." I say bull crunchies. Forget what the analysts are saying. Forget all of these long term targets that everyone and their brother seems to have. Forget what the "professional" traders are talking about. Forget the rumors and the news releases...it's all crap.
This is part of becoming an "objective" trader instead of a "subjective" trader. You have to be able to start each and every trading session with a clean slate. Forget what's been going on...what is the chart telling you RIGHT NOW? That's all you have to worry about. If the price action is telling you to go long on a risk pair and the rest of the market is in the toilet, forget the market...do what the chart tells you to do. If you're wrong, no big deal. Don't go long just because you think it's oversold and you're hoping for a bounce. Do it because it's logical from a price action stand point.
Revelation #4...Patience, Patience, Patience! We all hate waiting for a trade to set up properly. We all hate not being in a trade. It's one of the biggest problems traders have. We have to be able to sit back and do nothing sometimes. Contrary to popular belief, we don't have to be in a trade all the time. If a logical setup isn't there, then wait till it does set up. Don't jump the gun. I can promise you that a trade will come your way...happens all the time. But there are times when you need to step away and go do something else. Practice your yoga moves, go trim your nosehairs...go do SOMETHING! But if you sit and stare at the charts long enough, you're going to convince yourself that something is there that isn't there at all...and you're going to jump into a trade and you're going to regret it. Then, sometime after the fact, you're going to see a logical setup and you're gonna kick yourself in the butt and say "why didn't I just wait a bit longer?"
There's other stuff, too, but that's enough for now. Nothing complicated...just plain old discipline and some attitude adjustment. Let's start trying to see the market as it really is and not as we want it to be. We'll be better off when we do that.
I'll get some charts together tonight and show you some of the stuff I've been seeing.
