Sunday 15 April 2018

Why Arrogance is Expensive in the Markets

By: Steve Burns

There are two kinds of traders:

1. Those who are humble.

2. Those who are going to be humbled.

In the markets competence must come before confidence or the market will give you an expensive education. No one can predict the future prices of markets the stronger the belief that you can then the harder it is to exit a position when you are wrong. The future can not be predicted because it does not exist yet and there are endless variables that will play into how prices play out due to news, buyers and sellers motives, along with mass fear and greed. The height of arrogance is in making big risky bets believing you can predict the future when most know variables are already public. The bigger the position size of a trade the more arrogant or ignorant the trader usually is. The bigger the trade the bigger potential loss, the longer you wait to take a stop loss the bigger a loss will grow. The market will charge you a high price to teach you to exit your losing trade for a small loss.

What can a humble trader do in the place of opinions, predictions, and arrogance? Trade a system that reacts to what the market is doing not what you think it will do. Up trends, downtrends, and ranges give you clues as to the nature of a markets price action.

A humble trader looks at the past history of price action to give them a better chance of trading future price action profitably. Backtesting a trading system does not guarantee it will continue to work but it greatly increases the odds. The patterns and trends of the markets do not repeat exactly but they are similar enough to trade with good risk/reward ratios.

Have confidence in your trading system and your discipline to execute your trading plan with discipline. But also be humble and take your planned stop loss when the market shows you that your trade entry is likely not going to work out as a profit.

“There are old traders and there are bold traders, but there are very few old, bold traders.” – Ed Seykota

Source: www.newtraderu.com

Quote for the day

"The unexamined life is not worth living." - Socrates