When traders start out these people perceive markets differently than skilled traders do, especially when there're starting out or just learning day trading methods. The beginner believes that with the right entry method they will gain some control within the outcome of their actions. If you think about this kind of on a deeper level you will see that that the only control merchants have over their positions occurs at the time of entry. Once the position is moved into and filled the trader loses all control within the position and is subject to the market to do what the market will do. It is not easy to give up control, but it is necessary.
Before entry the trader received full control over everything, the position, the account and even the markets. Yes, you control what the market will do TO YOU by avoiding market entry. So looking from a pure psychological perspective you will observe how you give up all control once you pull the trigger and enter the position.
I always ask traders simply how much time they spend thinking about their exit strategy when compared with their entry strategy and the answer is usually 9 to 1. Think about your personal knowledge and how much time you approach your exit strategy compared for an entry strategy. Most traders don't spend nearly all the time thinking about their profit target when compared with their entry strategy, but your profit target is liable for how much money you help to make. Same with your stop loss strategy; it's directly responsible for your risk and your loss quantity but most trading books speak about it in passing or offer simple rules that don't work in all situations very well. Due to the fact that it is oversimplified.
When traders look for entry strategies they target the accuracy of the method and the risk to reward profile of the entry method, this makes them feel responsible for all over their trading account. They feel if they know how accurate the entry method will be they can have even more control within the market. Most of the time this happens with a subconscious level and traders don't even realize that is happening to their thought process but it really is.
Some time ago I wrote articles about using the ATR warning to equalize or balance your positions. The ATR indicator measures this daily or the intraday trading range using the actual volatility of the stocks, futures or forex contracts that you will be trading. Even though the ATR indicator was developed 4 decades ago it remains one of the most solid indicators for measuring the actual volatility. What I like the most about the ATR indicator is how the idea adjusts dynamically as volatility modifications bar by bar or day to day, depending on your time frame. This allows the market to tell us where to place stop loss orders and profit targets rather than us imposing our will in the marketplace.
A day or two ago I wrote an article about positive expectancy that's the key to having complete trading method; you can chose the article and the video upon Market Geeks website. They key to achieving positive expectancy should be to minimize your losses and maximize your winners; both of these elements want to do with your Exit Strategy rather than your Entry Strategy.
You minimize your losses through placing stop loss orders which can be effective without stopping you out prematurely and you maximize your winners by implementing a profit target or maybe a trailing exit strategy that allows the market industry to maximize its momentum without exiting prematurely and missing out on a strong and powerful move in your direction after your position may be liquidated.
Tomorrow I will continue this series and will reveal exactly how to use this ATR indicator to measure stop loss levels together with profit target levels dynamically using the actual volatility of the market being traded. Trading is not really a one size fit all endeavor and different markets produce different levels of volatility at different times. By using actual market volatility in order to measure our stop loss amounts and profit targets we provide our positions the breathing room they need and concurrently the protection level necessary to offer the best risk to reward percentage.
This is the best solution to start learning day trading as well as swing trading techniques that will work effectively eventually.
Stay tuned for tomorrows tutorial I promise it will be a great one.