Break-free from Old Trading and Investing Beliefs
The Complete Trading Picture
Even the disciplined ones of position trading will at times lapse from what is common sense, that of taking in the Complete Picture before making a move in the markets. Almost every trader expect those who day trade plan their entry using daily price charts. And although most know it is important to consider the weekly, monthly, and even yearly charts first, often this step is skipped over in place of just relying on just the daily charts alone.
Having said this, experienced traders may say, "yes, that's right. Good reminder. I'm back to it,” and then stop reading this article, the inexperienced/new trader would be well advised to take note of the following.
A trend has within it smaller trends. Each of those trends have smaller trends within them, and so forth. A yearly price chart will show trends in which monthly, weekly, daily and intra day trends exist within. Imagine how mind boggling that is. If we only look at the small trend within the larger one, we miss the overall direction the market wants to go. Let me now share with you how all these trends start out, and then bring you along the road of common sense often not considered. The following discussion will deal only with a Bull Trend. Simply turn it all around for a Bear trend.
A Bull Trend is made up of Swing Bottoms that are formed higher than the previous swing bottom. It can form at times lower than the last swing bottom, but not lower than the last two swing bottoms.
2.All Bull Trends start with the main bottom and is followed by a bottom higher in price than the main bottom.
Now, simply visualize what I just said. Find any price chart, no matter what time frame, and locate the very beginning of a bull trend. Notice that price will rise, and then fall again, but only to make a higher bottom than the beginning of the trend. Common sense. Not a revelation.
Now, think about this for a moment please:
1. On a Monthly Chart, you notice that price made a monthly swing bottom, rose in price by a few monthly price bars, then declined again but has not moved lower than the very bottom.
2. On a Weekly Chart, you spot the weekly bottom that makes up the actual monthly. You notice it moved in an up trend off that monthly bottom, moving up and down, and now is correcting to downside with monthly move down. But prior to making a lower monthly low than the previous one, our weekly bottom is now followed by the formation of a higher weekly bottom.
If you have a weekly bottom, which is also the monthly bottom, and it rallied and now corrected to form a higher weekly bottom, what might that suggest about the weekly trend? What might that mean with the monthly trend, considering this is occurring while the monthly low is higher than the last one? The long-term trend may be changing to the upside.
But very few actually trade off a weekly chart. However, if you note the monthly starting to form the basis of a new Bull trend, and also the weekly chart, what do you think you should be concentrating on when using the daily price chart?
The day trader usually does not care. However, if the larger time frames are strong to the upside, the intra day trader would be wise to focus mainly on the long side of his trades where strength is expected to be.
For most position trades, a glance at the monthly is all that is needed. Which way is it moving? Okay, that is your weekly trend and leave it at that.
Now, on the weekly chart, keep that direction in mind unless you get the formation I mentioned earlier. If the monthly trend has been down, look for shorts until you note the weekly chart making a higher weekly swing bottom than the last one. Intermediate trend is suggesting a bullish note. Go to your daily charts and look for the same pattern. Find it, grab it, and hold on to it. It is valid for as long as a weekly swing top does not form Lower than the last one, which would suggest the intermediate trend is changing to the down side. The ride long is over.
It really helps to get the complete picture regardless of the time frame you want to trade. My daily reports include comments about the weekly as well as the daily charts for any market in question. Sometimes the monthly as well is discussed. I find that simply looking at the daily charts is leaving a lot of important information on the table. It may also leave a lot of money on the table as well. Can you really afford not to have the complete picture when trading?
Expectations vs Reality in Trading
What were your expectations when you decided to start trading? Were you looking to make a killing and live in the clouds? Were you looking to make a very comfortable living off your profits with minimal effort? Or possibly, you were just interested in supplementing your existing income with another stream of income?
After reading a year’s worth of comments from traders read on Internet trading forums or personal email sent to me from clients, it appears that most people come into trading with very high expectations. In time, reality starts to chisel at their original expectation and view of trading until, for many, it has been reduced to nothing more than a hope of breaking even or a quick exit altogether.
The few that remain in the trading arena after realizing their original expectation isn’t likely to be met have likely learned what the reality of trading is and have come to accept it as reasonable. This is not to say that there is only one reality, for that would not be a correct statement. Rather, it is the reality that pertains to each of us individually that we need to come to realize, accept, and work for us.
Those who remain trading after failing to realize early expectations have come to grips with the reality of trading that pertain to them. For maybe they expected easy riches, but soon discovered that trading is hard work and takes dedication, and the payback is appreciation of capital over time. Others may realize they can make a living off the profits, but it is just enough to live on and is not stress free.
Some come to find that reality for them is that it is feast or famine. They go up and down like the markets when it comes to profitability. The reality of trading as I see it is the opportunity to outperform most mutual funds or an interest bearing account at the local bank.
If you are to reap the benefits that are available by way of trading, you will need to come to grips with the reality of trading that pertains to you. Not everyone is going to make a killing in the markets on a consistent basis. You will have your good trading days and your bad ones. If you keep your expectations too high, you will likely become discouraged and lose all your money before you can achieve what would have been your reality in trading, the opportunity perhaps to make a nice return on capital investment instead of owning Trader town.
So my advice is this, if you have not yet realized the reality of trading that pertains to you. Do not expect to take a big chunk out of the market and live high on the hog. Instead, focus on more achievable goals such as improving your trading and making a small % dividend on your funds consistently. Once achieved, focus on the next small step beyond and so-forth. If your reality is going to be that you will one-day own Trader town, this will likely be achieved by taking one step at a time rather than expecting the whole planet up-front on margin.
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