I have always suggested and firmly believe that learning how to become a consistently profitable market speculator is not that difficult. The logic, rules and strategy are certainly not rocket science. The challenge comes in when you actually attempt to execute a consistently profitable strategy. The main reason for this challenge is the fact that we are humans, with human emotion. From birth, we run from things that we are fearful of (risk) and gravitate towards things that make us feel good. If you take this natural action in trading and investing, you are in for big trouble.
The consistently profitable trader buys after price has declined and just after the majority has sold (red candles), at demand. Buying when everyone else has just sold is not a comfortable thing to do for most people. When shorting properly, you have to get excited to sell after the majority has bought and after a big rally in price (big green candles); this will challenge every emotional bone in your body. Here are three ways to help reduce the emotional obstacles to consistently profitable trading and investing.
Change Your Chart Colors
Most people use red and green candles which makes for a nice-looking chart but may not always be the best choice for real trading decisions. If you are making them mistake of selling short AFTER a rally in price and INTO an objective supply zone which is the high probability shorting opportunity, human emotion is likely to blame as you chase that bunch of big green candles. Selling short after a series of big green candles is NOT comfortable as it creates the strong illusion that price is going to keep going higher.
Sam Seiden Trade: 7/11/17
Above is chart of the Australian Dollar Futures, this is a swing trade I took last week. Notice the decline in price to the pre-determined demand level which is where the low risk, high reward and high probability buying opportunity was (circled area). I changed the color of the candles to black to reduce the challenge that human emotional imposes of buying at the scary red demand zone. Changing the color of candles is not a bad idea if you are new to trading and focus on candle color too much. Always remember, the color of the candles means absolutely nothing when it comes to a bullish or bearish decision. What is important is the location of the candles with regard to supply and demand.
Set It and Forget It
The simple task of pushing the buy and sell buttons can be an emotional challenge in and of itself as many traders can’t simply get over the fear of being wrong. The good news is that you don’t have to push the buttons when you enter and exit positions anymore. This is a huge benefit new traders that was really not available years ago. I call this “set and forget” trading; I always set and forget. The way this is done is through 1 order like you see below, which is the exact same type of order I used for the trade described above.
The order I have highlighted is an initial long entry to buy. Attached to that buy order is a protective sell stop order to manage the risk and a sell limit order for profit taking. Once you know where your demand level is, your protective stop price, and your target for profit and you have decided that you wish to take this trading opportunity, you can use this order to really be hands off for the trade. You can (and should) walk away from your computer and the entire trade will play out without you. This is a fantastic way to keep human emotions from wrecking your trade and as a bonus, you create more free time for yourself. It also allows you to do what is most important, go live your life.
Focus On Low Risk
- There is no certainty of outcome
- You will have losses
The key is to understand that the best traders are the ones who know how to lose properly, keeping the size of losses (not necessarily the frequency) to a minimum.
Let’s go back to my trade setup above. When price was approaching the demand level for a buying opportunity, there were two different thoughts that I could have had; two thoughts that determine whether I will execute my trading plan successfully or let human emotion take control.
The novice tends to let human emotion creep in and worry about price not turning higher and the dreadful outcome of being wrong. The consistently profitable trader, however, is actually very excited because they know that the trading opportunity is very low risk because they are entering the position as close to their protective buy stop as possible. Even if they are wrong, the loss will be minimal and they made peace with small losses long ago. Also, they make sure to adjust their position size to a level that they are more than comfortable with so when it’s time for entry, instead of watching the chart and fearing a potential loss, they can focus on how low risk the opportunity is.
I ended up making over $4,000.00 on my trade, but had I lost around the $1,000.00 I was risking, that would have been just as ok. Losing small is part of the winning strategy.
Hope this was helpful, have a good day.
Sam Seiden – firstname.lastname@example.org