It is very often true that doing the easy thing is not the right thing. I’ve been in the markets for about 20 years now and I have to occassionally have that lesson reinforced.
The price distribution charting method I use in my work developing S&P short-term trading strategy each day for my institutional readers does not suffer cowardice lightly. The best risk/reward trades it identifies for me are generally the ones hardest to actually take.
Wednesday was a perfect example. Of late, any time the market has made a big move in the pre-market futures action it’s been a great fade opportunity (meaning trade in the opposite direction). I’ve generated a nice amount of profits for my readers on trades just like that over recent sessions.
Yesterday, however, I blew it. I didn’t set up the trade to buy the market near the open and had to suffer through 20+ points of market rally through the day. Worse, I took the easy route and shorted at a couple of points. Naturally, my stops were hit and I ended up down on the day.
Of course losing days happen. That’s not the point. The point is that I spent all kinds of time hemming and hawing over what my opening strategy would be when I should have just said, buy the open because it’s going to be right at a key point to do so.
See? Even experienced traders fall into the traps sometimes, so don’t feel too bad if you make mistakes in your trading. They are going to happen. You just need to learn from them and carry on.
Actually, let me restate that a little. There’s one mistake you absolutely cannot make. That’s trading too big and not controlling your risk. If you control your risk and make other mistakes then you will come away a little bruised, but not severely harmed. If you don’t keep your risks small, though, a mistake could mean account demolition.
That’s something I am absolutely locked in on. My price distribution technique allows me to identify those low risk/high reward trades. As a result, my strategies since the beginning of the year have produced about 120 points of profit on a win rate of about 56% with winners averaging around 9 points and losers about 4.50 on 39 trades so far. This is all going with just 1 contract per trade. (Assuming that one were trading the emini S&P, the 120 points adds up to $6000 on a contract which requires $3000 or less in initial margin). Even though Wednesday I botched things up with two bad trades, they only cost me a total of 8 points, so relatively little damage was done.
Time to buck up and take those scary looking trades know that the method won’t give me winners all the time, but sets the odds in my favor!
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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