When I first started learning how to trade, there was advice everywhere.
And everything seemed to make sense (and had huge promises of success).
I remember things as simple as learning how to identify support and resistance lines. The idea that you could find a line where a candle stopped in the past and would stop again in the future seemed like a goldmine!
All I had to do was draw some lines and trade those lines and I would make a ton of profits!
I began to see trend lines and support/resistance everywhere on the charts and I was ecstatic. I marked up my charts with wild abandon and started placing my buy/sell orders a pip or two ahead of these lines with my stop losses a pip or two beyond these lines (always carefully allowing for the spread.)
I just knew price would touch the line, pick up my order and bounce in my direction and I’d be rich.
As you may imagine, I didn’t get rich…
In fact, dwindled a significant account down extremely quickly.
My lines simply weren’t working the way I thought and the way I was taught. Sometimes the price bounced right before my line and I missed it. Other times it shot barely through my stop and then reversed to what “woulda coulda” been amazing profits.
It was brutal. But there was a reason for that…
A line isn’t just a line. It’s a market zone or price range. It is an interpretation of price from institutions and brokers and retail traders. There’s no perfect place to put a line on a chart and think it should work.
Support and Resistance, despite what you may have heard, is a very subjective game. You can have an opinion on where “key support” is and you’re probably right. But so is everyone else. There are clusters and inexact areas where price chooses to respect or not respect on a given day.
I am sorry to say, but the market doesn’t really care about you or I’s opinion of where it should stop. It doesn’t care about the lines we have on our charts either.
Learning the truth about how “lines” really work was a painful but valuable experience. And now, when I see a trader with a line at his “perfect” support level and a stop loss just a few points below as if his line is guaranteed to work, I can help 🙂
This is just one of the myriad of things we learn as traders that is not necessarily wrong, it just doesn’t equal profits in real trading circumstances.
You hear all sorts of advice, ideas, suggestions and mantras from many different “gurus”. Some of it will be practical, but vague (“buy low, sell high” – well duh.)
But how does this advice add up to you becoming a profitable trader?
Well, to answer that question, let me give you some more “duh” type advice:
Practice, practice, practice!
I mean, c’mon, what other skill have you acquired without any practice? Did you read a book or watch a video about golf and then go play a great round?
You have to take the educational things that have some value and then put them to work (normally over and over through trial and error).
Sometimes the advice we receive from others was something that helped them with a particular problem they were having and, out of context, it will just cause you additional problems.
Delve into this advice.
Ask questions. Lots of questions. Most of the traders I know are willing to answer your questions for you.
Find out what the advice means in their world. Then use that information to figure out how to apply that to your trading style.
Just downloading a strategy guide will not make you instantly profitable(though obviously understanding lots of strategies is a great tool and resource).
You have to tweak these strategies to fit you.
Trading is largely psychological, so you will have to adjust things to fit your brain. For example, some strategies are designed to win only a small percentage of the time, but when they win, they win big. Those strategies would not be well suited to someone who has a problem with losing trades.
Understand, when you are tweaking a new strategy, a few trades – whether they are winners or losers – will not tell the whole story. Just because a strategy loses the first five or ten or twenty times that you try it, doesn’t mean it’s not a good strategy. It may be better suited to different instruments or time frames or times of the week or year. Or it may be one of those strategies that lose 90% of the time, but wins huge the other 10%. The same goes for the opposite side of that coin. Just because a strategy wins your first entry, don’t believe it must be a winning strategy that’s right for you.
I know, I know. This all sounds negative. But it’s really not.
In fact, it is insanely positive because once you get past all the analysis and practice, you end up with a skill and a tool that has unlimited value!
Getting there requires you to log your trades so you know what’s working and what’s not. It isn’t the most exciting aspect of trading but it will be what helps you ultimately achieve success and that’s pretty exciting if you ask me.
Next week, I will talk about that logging process and how to tackle it with some concrete steps I believe can truly help you.