Only after the market has given you some profit to protect or to secure towards the direction should you make your move. Leave Your Ego at the Door Along the same lines as disposing of your ego, you must understand that you cannot manipulate prices. To repeat, most of us are small players, and whatever orders we place in the market will not replace price. All we can do is enter and let the market greet us anyway it would. Because of this inability, we need to reassess our analysis over and over.
We need to be very dynamic with how we manage the position. We need to modify our trade with new information that comes up constantly. This means positioning our targets and redefining the level that we think the market will have difficulty passing through.
Always be on the lookout for the market to suddenly go against you. These are all things that need to be acted on. As mentioned in the introduction, massive events can occur at any time by surprise. Events like political speeches where new rules are introduced, central banks interventions , a conflict between countries, natural disasters, etc. What happens to the market when a volcano erupts and stops air travel for weeks?
Unexpected events that can happen in a minute are anomalies that we have no way of dealing with unless we are prepared. We Trade Forex — Come trade with us! Prepare Your Portfolio for the Worst Always consider that something adverse might happen. Start slow, build up protections, and then you can always add on like that. So how do you build a successful low risk portfolio in such an environment?
Write a detailed action plan. Map all the possible scenarios you have experienced in the past according to your trading strategy. Write a detailed action plan for all such scenarios. This gives you a tool that allows you to always respond fast by triggering an action plan without thinking.
If, for some reason, it turns out to be wrong, take the loss, be happy that you had the action, and stuck to it. Evolve as the market presents you with more information. A good trader knows that a low risk portfolio is built slowly, but everything can be lost quickly, so he cuts losses as soon as the market goes against his position.
Learn to love your losses Acknowledge that losses are part of the job, and you need to accept them and convince yourself that taking them according to the plan is a healthy behavior that will save you in the long run from harming your portfolio. A good or bad trade is defined by being a trade placed following your trading plan and strategy, regardless of the outcome. Engage in less emotional decision making.
Others may be scalpers who trade the same asset day over day and analyze intraday price movements using technical analysis such as fast and slow moving averages. If they understand the general direction in which the market is trending on a given day, they can follow the trend and exit all their positions before the market closes. Pros and Cons When you analyze price movements over such a short time frame, more false signals are bound to appear due to the small sample size and limited context.
Spotting a false signal and confirming the validity of your analysis can be tricky—especially when time is of the essence. For these reasons, day trading typically requires more experience and familiarity with the market. To be successful, day traders must also practice effective money management and be ready to respond swiftly if price moves against them. Traders use technical analysis to identify potential retracements and distinguish them from reversals instances when price changes direction but does not correct, forming a new trend.
If the trader expects a temporary dip or surge in price to be a retracement, they may decide to hold their current position under the assumption that the prevailing trend will eventually continue. On the other hand, if they expect that the market fluctuation is an early sign of a reversal, they may choose to exit their current position and enter into a new one in accordance with the trend reversal.
Tools Used To distinguish between retracements and reversals, many traders will use a form of technical analysis called Fibonacci retracements based on the Fibonacci ratio. This principle dictates that a retracement will end once price reaches a maximum Fibonacci ratio of For this reason, many traders use this ratio of Retracement traders who aim to profit on the break in the trend will also use the Fibonacci ratios of Pros and Cons Although using Fibonacci retracements can help you determine when to enter and exit a trade and what position to take, they should never be used in isolation.
The most successful retracement traders confirm breakout and reversal signals using other technical indicators such as moving averages , trend lines, momentum oscillators , and price candlestick patterns. Unlike other breakout trading strategies, however, grid trading eliminates the need to know what direction the trend will take. In a grid trading strategy, traders create a web of stop orders above and below the current price.
Tools Used Before placing buy and sell stop orders, traders will first identify support and resistance levels and use this bracketed range as a guide for setting up orders at standard intervals. Support and resistance levels can be calculated using technical analysis or estimated by drawing trend lines onto a price graph to connect price peaks resistance level and valleys support level.
Typically, grid traders will lay out their strategy after the market has closed and preemptively create orders for the following day. On top of that risk, traders must also manage the inherent costs of keeping multiple positions open. Instead, opt for a more straightforward, long-term strategy such as trend trading that will give you the time you need to learn technical analysis, practice smart money management, and reflect on your performance.
Not every strategy is ideal for every trader. In a similar vein, not every strategy is well-suited to every market. Some strategies work better in trending markets, while others are more effective in ranging or volatile conditions. Finally, remember that all traders—no matter how knowledgeable—experience loss.
Although technical analysis can help you manage risk and reward and inform your trading decisions, no analysis can predict the future with percent certainty.
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