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stock trading: finding the easy trades

I am sitting here at my screen managing risk for over 500 traders. It still amazes me how many traders make their job as hard as possible. The biggest errors I see on a consistent basis are fighting the trend and picking tops and bottoms.

When I bring this up to those traders in meetings the answer is usually the same, I want to catch the big moves. I have news for you, good trading is very boring. You as a business owner (yes you own a business if you are a trader) should be concerned with making your equity grow consistently. You should not spend your day looking for homeruns. They are far and few between to rely on to earn a consistent living.

Find a trend! Spend your day and your homework time looking for an obvious bias to trade. Then trade that bias and only that bias. Do no countertrend trading at all untill you can be consistently positive


Categories: Psychology
  1. DaytraderDave
    October 30, 2007 at 9:17 am

    Hi Pete,

    This is by far the section that I like most on your blog – and I will tell now you why.

    Many trading textbooks say that trading is 80% mental and 20% mechanical. However, I tend to disagree with these figures. I tend to lean more towards 95% mental and 5% mechanical.

    I read that you recently saw a newbie trader run his top loss – only to see the market then tumble and lose out on not entering after the big LRB – large range bar.

    Now, at least he was controlling his risk, which is the most important aspect of trading, but, as most experienced tradres know, only too well, that controlling your risk is not much use if you keep having bad entries and keep getting stopped out. All you are doing, in reality, is bleeding to death more slowly than if you were using no stops at all.

    So, why did the trader enter the market when the market was in an obvious decline. I have one reason, one that is common to all new traders, and one that I went through myslef, and continue to do so on an occasional basis when I am not thinking correctly.

    The reason is that the majority of traders always trade against the trend. Why is this so?. Well. human psychology is such that when we see a run up, we say, hey, we have missed it, so when it comes back down a bit I am not going to miss it the next time!

    This is like fools gold – and the Shop Keepers (Pro Traders) are out there selling the Picks and Shovels to the the thosands of prospectors (Public Traders) who want to get in on that final gold rush, and when they all find out there is no gold to be got, they just dump their Picks and Shovels on the ground, and who do you think will come along and pick them up – yep -the good old Shop Keepers!

    This all sounds easy of course, but it is the hardest thing ever to do, as it is not in line with everything we normally do, and that is why we find it so hard to master trading with the trend.

    If we are making higher lows on each market swing we are going up.

    If we are making lower highs and lower lows on each maket swing we are going down.

    Many new traders fail to see that there is a big differnece between the market going up and the market going down, and even though I have just wrote it down, they will still fail to see it -why?, because they are not thinking correctly, it is as simple as that, is it not!



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