I was talking to a friend of mine last evening and the discussion prompted me to write this post. This line of questioning from my friend suggested that he wanted a trade and he wanted it just now. Plainly said, he was desperate to trade. This is one of the key factors that prevents traders from making money consistently.
Trades are typically an impatient lot. The compelling urge that most have, while analysing and stalking an investment decision, is to take a decision immediately. Not many can sit tight and wait for the right opportunity to line up. This not only leads to poor trading location but also forces people to compromise on stop-loss placement. A potent combination to lead someone to the path of bankruptcy.
I always maintain that losing an opportunity costs nothing but forcing a trade decision would be detrimental to profitability. Whenever there is this compelling urge to take a trade right now, please be reminded that it is after all your money at stake. What is the point in risking your capital if the odds do not stack up in your favour.
Price always fluctuates and not on too many occasions does the price run up or down unidirectionally. It would always pull back to an area of support or resistance, offering thereby a better and relatively low risk opportunity.
If you can identify those support / resistance neighborhood, it gives you that edge in terms of better trade location and affordable stop.
Trading is not too different from a game of Chess. Just as in Chess where you cannot win consistently by just reacting to the moves of the opponent, in trading too, one needs to be a few steps ahead of the crowd. Chalk out the possibilities and plan the trade. When the price reaches your neighborhood, it boils down to just executing the plan. You will end up making money consistently once you plan your trade and ensure that the risk-reward is 1:3 or better and understand risk control as well as money management.
We address these issues in the FREE weekly webinar that is hosted every Friday at 4 PM. Those interested may register here.
Trade Safe and Don’t Get Hurt.
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