It would be really good if there was a way to enter the market right when it started going up, and get out right when it reverses. Many novice traders think that they have to trade like that, otherwise they can not be called a trader. It is not their fault in most cases. They just don’t know they are wrong. This mistake is what they learn from some trading courses, videos, sites, and… . One day I attended a seminar. The instructor showed a slide like this, and explained that he could teach the students to buy/sell whenever the market went up and down:
This is so encouraging to novice traders. When they see such a screenshot, they refer to some price charts and calculate the money they can potentially make, and they get excited. The first thing they do is opening a live account, trying to copy the same strategy they have learned from the seminar, but unfortunately what they get is a wiped out account. Many of them don’t get disappointed and reload their accounts trying to do the same, but they fail again.
Trying to hit the top and bottom of the markets becomes a habit in them from the first day they start trading, and this is because of nothing but a bad instructor who is not a trader himself. This habit causes them to go against the trend while it is still strong, because they take any reversal signal, even the weak ones, to enter the markets at the beginning of a possible new movement.
It is very easy to figure out where to buy and sell when you look at the back data. But when you want to apply it to the live market, you fail. Each time you think it is time to enter because the market wants to reverse, it keeps on moving toward the same direction.
It would be really good if we could hit the top and bottom of the markets. Who hates to make money every time that the price goes up and down? Those who try to do that and be among the first who buy when the price starts going up, are not aware of the power of trends, specially when it comes to trading. A trend doesn’t reverse so easily in the markets.
In any market, price can go up and down a lot, but it doesn’t mean that we should make money through each and every ups and downs the markets make. Trading is not about buying low and selling high, and selling high and buying low. In most cases, we have to buy high and sell higher, and sell low and buy lower. Those who try to go against the trends, are greedy and they are eager to hit the top and bottom of all the markets movements, but this is impossible.
It is the market that has to tell you when it wants to reverse, and when it wants to continue the trend. Then you can decide whether you go for the continuation signal and ride the trend, or take the advantage of the reversal signal.
There are so many cases that the price changes its direction and moves toward the opposite direction very strongly while it doesn’t form any visible and distinguishable reversal signal. Naturally, we can not be in and we have to sit and watch the strong movement while we are out. This is normal, and happens a lot in trading. Markets are not supposed to form strong signals any time they want to continue the trends or reverse. It is the trader’s job to watch the markets, and wait for a strong signal to form. If a market forms a strong signal, we get in. If not, we have to be out.
Most traders have a wrong impression about trading. Trading is not what most traders think. One day a friend emailed and said that while I was waiting for a strong trade setup to form on the daily chart, he joined a signal service, took several positions and banked thousands of dollars. I replied his email and told him that I would email him again after a few months to see how his trading was. Two months later I emailed and asked him whether he was still doing good with that signal service or not. He replied that he wiped out his account the same month that he emailed me.
If I had warned him about the risks he was taking, he would not believe me, because at that time he was so proud of the profit he was making, and he underestimated my knowledge and years of experience in trading so many different markets. Therefore, I decided to let him learn the lesson the hard way, so that he would never forget it.
You have a wrong impression about trading, if you think:
- Trading is a get-rich-quick program.
- You have to make money through all the price ups and downs.
- You can hit the top and bottom of the trends.
- You should take at least one position any time you sit at the computer to analyze the charts.
- You should open a live account as soon as you learn the basics and a trading system.
You can become rich through trading, but you have to pass all the learning stages, otherwise you can not make even a single cent after years of learning and practicing: Trading Strategies Don’t Work If You Don’t Choose the Right Living Strategy