Hi traders! Successful trading is often not about unique trading system, it’s about doing certain things over and over again, or I would rather say – not doing them. Many beginner traders often do the same mistakes over and over again and if you would simply avoid what they do (or even do the opposite), you would get an edge on the market, Because this market is not about buying and selling in hurries or react according to market volatility.
I created my own TOP-3 list, you can add some more in commentaries to this post. I haven't uncluded money managent here, just chart patterns (market behavior) that traders fail to read properly (Because pattern do tend to trade with Historical Charts)
Selling «expensive» and buying «cheap»
Most popular terms used in the "trading" is «buying bottoms» and «selling tops». When price suddenly breaks out from some range (say, to the upside) and starts to move rapidly, most traders will sell against this rally. That’s an instinct as Indicators told you (As Most of them react after trend is matured or trend is strong). If we’ve seen before Low volatility and absence of significant price Behavior to whatever side, we tend to deny breakout, we treat to new prices as «unfair» and rush to open a trade. Why in this case most traders are in hurry? They thing that current price action won’t long last and price will quickly drop back to the previous trading range.
Let's take a look at Example
It has rallied heavily, and believe me – there were many traders caught in short positions. Price has finally moved back to day opening, but I’m not sure that any short-sellers could benefit from that movement. You can’t enter short position (or long position, any position) if you don’t know your risk, if you are unable to calculate or estimate it. You can, of course, but it won’t be low risk trade, your risk will not be defined (don’t tell me that you know your risk because you have your stop-loss)
So, in most cases shorting against such rally can be only reasonable when market is overbought and ready to liquidate to the downside. Such situations are pretty rare and this topic goes beyond our post.
To avoid catching tops and bottoms, I recommend to switch between timeframes from time to time. What is cheap for one timeframe trader, may be expensive for other timeframe trader.
