Buying when we should have been selling.
By Tom Long | October 11, 2007
Occasionally (hopefully not more than once) we find that we entered into the wrong side of a trade. We meant to sell, but instead we bought. After the few seconds of panic, we are left with a decision. What do we do now? Most professionals will tell you that whenever they find themselves in this position, they immediately close the trade and correct their error. Too many times a new trader will convince themselves that the trade may work out anyway if they stay in long enough. However, more often than not the loss just gets bigger and the trader just gets more frustrated. Now you find yourself losing when you should have been winning. If you immediately exit and reenter in the direction you originally meant to, you could quickly absorb that loss and start to profit. So do not hesitate in fixing these types of errors. If it costs you a little money, chalk it up to experience. But don’t let a mistake like this get out of hand and of course, try not to do it again.
Tags: currency trading, forex, forex trading, trading mistakes
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A consistent approach leads to consistent returns.
By Tom Long | September 28, 2007
Too many new traders spend time developing an approach to trading based on historical data and then when they use it live for the first time and lose, they throw it away thinking that it doesn’t work. The fact may be that the approach is solid, but it is our expectations that are not realistic. We shouldn’t expect to win every trade. Some of the best traders in the world win on less than half of their trades. But they also know that after a series of trades, because of sound money management they can expect to be profitable. This is because they are consistent in their approach, so they expect some consistency in their results. When developing a new strategy, you have to judge it’s effectiveness through different market conditions. This means that you have to see how it works when the market is trending up, trending down, in a range bound situation and also when the market seems confused and directionless. This may mean running through 100 practice trades to get a good feel for the strengths and weaknesses of the approach. Just because that approach loses three trades in a row, it does not mean it doesn’t work. If you and I were flipping a coin where I won on heads and you won on tails, we know that we would each win on about half of the flips. But if tails came up three times in a row, that does not mean that there is something wrong with the coin, it is just chance. We would still know that after a series of 100 flips, we would each still have won and lost about half of the flips. Think of this as you are working on ways to trade the market. Don’t be too quick to judge that approach on a small number of trades. Think long-term when evaluating and then if the results are acceptable, be consistent in taking the trades and your trading results will also start to show some consistency.
Tags: dow, forex, forex trading, trading mistakes
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