Taking a position and exiting a trade
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Novice traders proliferate trading errors in their early days.Among the main ones, one can cite overusing leverage, a non-existent risk management, entering and exiting positions without a trading strategy, refusal to accept losses and also greediness.When they win, they want to win a lot.They tell themselves that the fact that their scenario is good, that they have analysed well should enable them to generate big profits on a single trade.Without necessarily using leverage, they want to capture large movements.They do not accept taking only a part of the movement.Almost all novice traders aspire to this, to harness the entire bullish or bearish wave.Yet it is impossible.If this has happened to you, it is only because of luck and not because of your talent as a trader.
Novices always try to anticipate movements.To do this, they take an early position without waiting for a real buy/sell signal.For example, they will open a buy/sell position simply because the price just hit a support/resistance.Another classic consists in anticipating the release of a chart pattern.For example, if a HaS chart pattern is formed, they will buy/sell without waiting for the neck line to break.
These are serious mistakes.You should always wait for a buy/sell signal from your trading strategy to open a position.Buying or selling just because the chart configuration seems bullish/bearish to you is not enough.This will greatly increase your number of losing trades.Let's take a classic case with a double/triple top.If you sell before the neck line is broken, the chart has not yet been validated.Who told you that this is not just a consolidation range and that a bullish exit is not going to happen?
I took the example of chart patterns, but I could also have taken the example of a technical indicator with divergences.Differences generally work rather well on large time units but opening any position must be confirmed by a buy/sell signal on your price chart.
To secure your entries and reduce your number of losing trades, you must therefore accept losing part of the movement, usually the beginning of the wave.It is precisely this first impulse that allows you to validate your bullish/bearish scenario and thus allows you to open a position under appropriate conditions.If your analysis is good, then the chances of the movement continuing are greater.
If the buy/sell signal is not a false start which hits your stop loss, you have two options to exit the position.Either you have set a price objective (before opening a position!), or you let the movement carry you until the first signs of reversal.
Whichever method you choose, you will not exit your trade at the high/low end.Even if you watch out for the movement to be exhausted, you have to wait for confirmation to cut your trade and therefore lose part of the movement.When exiting by objective, the movement may continue afterwards (it is important to set realistic price objectives that have a higher probability of being achieved).
To trade in appropriate conditions, it is essential for you to accept that you will lose part of the movement at the time of opening the position and also when exiting a trade.It is because of this that it is impossible to buy at the lowest and sell at the highest.If you hope to be able to do so, you will inevitably end up losing your capital.
Taking a position
Novices always try to anticipate movements.To do this, they take an early position without waiting for a real buy/sell signal.For example, they will open a buy/sell position simply because the price just hit a support/resistance.Another classic consists in anticipating the release of a chart pattern.For example, if a HaS chart pattern is formed, they will buy/sell without waiting for the neck line to break.
These are serious mistakes.You should always wait for a buy/sell signal from your trading strategy to open a position.Buying or selling just because the chart configuration seems bullish/bearish to you is not enough.This will greatly increase your number of losing trades.Let's take a classic case with a double/triple top.If you sell before the neck line is broken, the chart has not yet been validated.Who told you that this is not just a consolidation range and that a bullish exit is not going to happen?
I took the example of chart patterns, but I could also have taken the example of a technical indicator with divergences.Differences generally work rather well on large time units but opening any position must be confirmed by a buy/sell signal on your price chart.
To secure your entries and reduce your number of losing trades, you must therefore accept losing part of the movement, usually the beginning of the wave.It is precisely this first impulse that allows you to validate your bullish/bearish scenario and thus allows you to open a position under appropriate conditions.If your analysis is good, then the chances of the movement continuing are greater.
Exiting a position
If the buy/sell signal is not a false start which hits your stop loss, you have two options to exit the position.Either you have set a price objective (before opening a position!), or you let the movement carry you until the first signs of reversal.
Exiting by objective
: Exiting by objective does not mean that you should not be active during your trade.It is indeed rare that the price follows a straight line to your objective (unless it is close).You have to increase your stop loss incrementally to first reduce your risk and then, incrementally protect your gains.This can be done manually or via a trailing stop.Exit on exhaustion of movement
: The signs of exhaustion in the movement are diverse but they are often seen by analysing the Japanese candlesticks (formation of reversed dojis, smaller and smaller candlesticks, etc.(See: Detect a trend reversal in trading), chart patterns and also technical indicators (especially those there because of divergences).Whichever method you choose, you will not exit your trade at the high/low end.Even if you watch out for the movement to be exhausted, you have to wait for confirmation to cut your trade and therefore lose part of the movement.When exiting by objective, the movement may continue afterwards (it is important to set realistic price objectives that have a higher probability of being achieved).
Conclusion
To trade in appropriate conditions, it is essential for you to accept that you will lose part of the movement at the time of opening the position and also when exiting a trade.It is because of this that it is impossible to buy at the lowest and sell at the highest.If you hope to be able to do so, you will inevitably end up losing your capital.
