Thursday, April 23, 2015

Patience Pays-Overtrade Underpaid

Our young friend, the gunslinger, goes hunting with his dad who has 30 years experience carefully stalking his prey and hunting them down. As the two of them head out toward the forest, gunslinger says to his dad; “Hey dad! Let’s run into the forest and shoot us a deer”!
Dad replies; “No, gunslinger; lets quietly walk into the forest, wait for the deer to come out, and shoot them all”.
Patience is a key discipline of trading. It is ideal to wait for the market to move to a level of high probability to enter a trade, but waiting for the market to arrive at your prospective entry point can be no fun.
The human mind view’s making money as an enjoyable experience, because it inspires dreams of all the things one can have and do if they make a lot of money. For some reason, trading is considered an easy, or convenient, way to make a lot of money, but people do not resolve themselves to the fact that it is neither convenient, nor easy. In fact, people may find it so inconvenient, combined with their greedy desires to make money; they will frequently put on a trade without premise, because they are unwilling to wait for the proper time to enter a trade. They want to run into the bush and shoot at the first deer, regardless of what the probability is of hitting it.
I can assure you that this approach to trading will cause great pain, suffering and financial loss. Although the wait may seem agonizing at the time, I would prefer to endure a lengthy period of stalking a decisively good trade, rather than taking a shot in the dark and have to suffer through the pain of a poor decision. An irrational shot in the dark

trade typically results from focusing on greed and the thrill of making money, rather than possibility of loss and pain.

The markets will often go through a long period of consolidation or confused price action, which does not lend to good trading opportunities. If you do not have the ability to recognize and admit to the reality that the conditions for trading are undesirable, you will probably lose. If the market does not make sense to you, then stay out! On the contrary, the ability to wait through market indecision can pay very well when one side of the market begins to take control. You will end up with a twofold benefit; you will save from losing money in the choppy conditions, and you may reap considerable benefit when the market breaks out.
If you run into the market like a gunslinger and begin to shoot at anything that moves, you will probably have run out of bullets when a prime target walks right in front of you.

Overtrade Underpaid
Over-trading relates to the fact that you are unwilling to wait.
At the end of each day/week/month, go through your trading account summary and evaluate whether you have made good or bad decisions. The following are some signs and considerations to help determine if an account is overtraded.
• Frequent trades relative to the time period
• Frequent trades on the same instrument taking the opposite direction on subsequent trades
• Re-entering a position after taking profit on a completed trade, because you think you got out too soon and the market will continue in your direction and you will miss out on the rest of the move
• Take a look at the number of trades you have made in a day or week. If you have a long list of losers, than you are probably overtrading and chasing the market.
• See “Chasing the Market Movements” above
Remember, this is a numbers game. Most novice traders have the tendency to take small profits and large losses for the reasons stated in this document. Therefore, the more trades you make, the more you will lose.

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