Insights

Do you want Bread or Bread Crumbs?

August 13, 2012 . FundsIndia Desk

The common mistake that many traders commit is that they want to participate in the every little squiggle in price. Is it worth the trouble? Definitely NOT.

Consider this: There are profitable BUY trades in a Downtrend and profitable SHORT trades in an  uptrend. But, as a trader, you have only limited capital – be it monetary or emotional.

With limited resources in terms of trading capital and emotional capital, why would someone want to waste it in a counter-trend move, which is nothing but bread crumbs. Not too many traders are adept at reorienting themselves from hunting for a quick counter-trend short trade and then flipping over to participate in the next big up move.

This flip in mindset is difficult to practice and more importantly can be dispensed with if you concentrate on the relatively easier trade which is in sync with the broader trend.   This is akin to wanting the bread rather than the bread crumbs.

But, as traders, lots of us fret over missing a move and end up chasing price, which invariably leads to poor trade location. Consider this: If you have a logical methodology to arrive at a stop-loss and target, then an entry closer to the stop-loss would mean that the  risk is relatively small while the reward gets bigger.

The main advantage of trading with the trend is that you can get away with poor trade entry provided you know where to place your stop loss and know how to manage risk.

Now, you decide whether you want the bread (which is relatively easier to get) or bread crumbs which is more difficult and not worth the effort!

Trade Safe and Don’t Get Hurt.

Cheers

B.Krishnakumar

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