They say generals are always fighting the last war. Some traders take that to mean they should flit from strategy to strategy, but should they?
Trading for a living can be fascinating. Many traders say it takes them to into another dimension, one that the non-trading set can’t completely relate to. But it can be overwhelming as well, with various asset classes, a wide variety of indicators, and a myriad of possible trading approaches.
If you think about it, not many full-time traders are successful right off the bat. The road to trading profitability can be as strange, unnerving, and frustrating as anything you’re likely to encounter in your life.
For some, it will take months or years to achieve consistent profitability. Others may spend a lifetime trying to get there, but never succeed. Of course, many factors can hold a trader back, but “chasing success” is one that’s often overlooked.
A common theme among those struggling in their trading is a lack of focus. They’ll use one technical indicator for a few days, stumble a bit, then move on to something completely different. One day the holy grail is the 12, 26, 9-period moving average convergence divergence (MACD); the next it’s a stochastic oscillator or a 100-day exponential moving average. One day the 5-minute chart is their time frame of choice; then they change to an hourly chart. Or they start by trading only pullbacks, and when that fails, switch to buying breakouts.
This bouncing back and forth between indicators, time frames, and styles may not give the trader enough time and focus to get better at any one method, and before you know it, time (and money) has passed and the trader is still struggling to try and achieve profitability.
Instead, he or she should consider finding a comfortable approach, then taking the time to improve and hopefully perfect it. Only then would the trader consider adding another method to the trading arsenal.
For those stuck in the cycle of chasing success, a first step toward breaking the pattern might be to stop and think. If you’re losing money in your trading, would it be better for you to trade more, or less? (That’s a rhetorical question.) Why make 20 or 30 trades a week when you are losing money?
Choose a setup. A time frame. An indicator. And then wait—wait until all the tumblers line up before you act. And what to do while you’re waiting? Study charts, hundreds of them. Thousands of them if need be. Analyze the details of your setup. Does it work better when volatility is high or low? Do you get better results when it occurs in a range, or after a breakout? What type of exit plan works best with your setup? You get the picture.
And if a day—or number of days—pass without triggering a trade, so what? Those are days when you didn’t lose money, and instead added to your trading knowledge. You might remind yourself that the purpose of trading isn't to trade, it’s to be successful at trading. To make money in your trading. And to do so in a consistent and predictable way.
The idea of becoming a jack-of-all-trades in the market—someone who can consistently turn a profit on any setup, time frame, or asset class—is a romantic but perhaps foolish one. Some of the best traders focus on a handful of setups that they’re comfortable with and have studied carefully. That same approach might be right for you.
Watch this video to get the basics on technical analysis.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.