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Trading Dos and Don'ts
[TRADING KEY LEVELS]
WTI bounced off 10 pips from the key support level of 56.66 shared a few minutes back
NG bounced off 1 pip from the key support level of 2.16 shared on Friday
Gold bounced exactly from the key support of 1325 shared 2 weeks back
Silver bounced 2 pips from the key support of 14.35 shared a few weeks back
These are recent examples of why trades should ALWAYS be taken at KEY LEVELS. Local levels may be attempted but important to understand that local levels are VERY WEAK compared to KEY LEVELS.
Waiting patiently for key levels and then trading them with tight SLs should be fundamental to one's trading discipline & technique. This shall keep the risk low on every trade and gains high when the trades play out.
There is no other technique in trading that can provide you such a good risk reward ratio. All it seeks from a trader is PATIENCE to wait for the key level and NOT trade at RANDOM PRICES. Trading every candle or wave NEVER makes any money.
It is literally true that millions come easier to a trader after he knows how to trade, than hundreds did in the days of his ignorance - Jesse Livermore
[HOW TO SELECT THE RIGHT BROKER?]
You are all set to embark on a trading journey with an initial capital that is a substantial portion of your life time savings. You believe it couldn’t have gotten any better, now that you have a broker who is willing to pay you a sign on bonus of $100 for opening a trading account with them.
What an amazing start!
You are now maneuvering through complex minefields of trading on a daily basis. After researching through news, events, earning reports, complex technical indicators, analysis for many weeks which has taken important time away from your family & friends, fighting your own internal bias & emotions, you finally converge on a few trades & set the ball rolling.
In a few days, you experience that your screens freeze during important trading hours/news releases. Your market order executes many minutes after it is placed and the actual entry point is many pips away from your intended entry.
You frantically call the broker for help. They tell you that it is normal for trading to be suspended on account of key events, due to heavy traffic & that the order executes after a few minutes. This happens consistently for many weeks & you learn to live with it. This is now a NEW NORMAL for you.
A positional [Few weeks] trade opportunity that you had identified is doing extremely well. Your hard work & analysis has paid off. You are super excited about the gains that you see on the platform screen. You close the position & wait for your account statement to quickly validate these gains. The statement leaves you stunned.
Your broker has charged you various fees – Spreads, Commission, overnight charges, fees for margins/leverage & many other hidden fees. The trade was actually a LOSS trade. All the gains plus some of your principal capital has actually eroded. You are pissed off with your broker & would like to withdraw funds. But, the withdrawal charges are absurd, have long hold time & requires additional identification.
You have just been SCAMMED.
Suspending trading during important events, trading unfairly against customer orders, unscrupulous commissions on trades & additional credit, making withdrawals convoluted are the most popular methods that many brokers use to rip-off traders, both new & existing. While new traders fall to this trap because of their novice status, existing traders are victims as their confidence turns to complacency.
Ways to address this matter
1. Reputed broker:- Detailed online reviews are available for all brokers. Important to vet them through reviews & by discussing with some of your peers who may be their customers.
2. Discounted broker:- Look for discounted brokers who charge a small FLAT fee per trade or a fee that is a miniscule percentage of your trade.
3. Experience first:- Learn the fee structure with very small trades first. Double check with your broker that the fees shall remain flat even if you were to increase the size of your lots. Small trades will also help you understand if orders freeze during important trading hours.
4. Only LIMIT orders:- Never place market orders with your broker that allows them a choice of selecting the price. Only place LIMIT orders.
5. No Credit & Extra leverage: DO NOT TRADE ON CREDIT/MARGIN if you are a novice trader. THIS IS THE FOREMOST reason for disproportionate fees. Credit converts many profitable trades to losses.
6. Trading technique: Adopt a trading technique which does not require a large initial capital. If one is trading strictly on the below rules, why should one need a large account size to trade?
a. 1% rule – Not risking more than 1% of your trading equity per trade
b. Tight Stop Loss based Entry Points – Wait for the right entry points near key support/resistances. If they do not work out, embrace the stop loss & the small risk.
c. No averaging losses or cost averaging
d. No hedging
Some more covered in the link below
Disclaimer:- Arnam Capital does not endorse any Broker nor recommends the services of a broker or other intermediary to their clients. Arnam Capital does not receive any consideration by way of remuneration or compensation or in any other form whatsoever from any broker or intermediary.
[OVER TRADING & REVENGE TRADING]
Trading every wave/candle is a poor strategy. No one has ever made money like that. Most new traders fall into this trap. It evokes emotions leading to over trading & revenge trading. It is the quickest way to blow up healthy accounts.
Wait for the good risk/reward opportunity
Operate close to supports/resistances
Identify low risk entry points
Place tight SLs with 1% rule
Get into the habit of taking profits - all of this remains the key.
80% of the battle in trading is won with discipline. Trading is actually a lot of hard work & can be a slow grind. Requires 3Ps - Persistence, Perseverance & Patience.
There is also a 4th. The MOST IMPORTANT P.
Peace of mind.
PEACE of MIND should be non-negotiable in trading.
[Trading Reports, News & Event whipsaw]
Last week's whipsaw in most instruments in a short window is a good example of why one should avoid trading during reports, news & major events. It is tempting to enter a trade when there is so much price action in a short window.
But what most small traders fail to understand is that the institutional algos understand this crowd psychology and keenly set their 'greed & fear' trap to take home easy money. Retail traders fall into this trap over and over again until they blow up their accounts.
What is more worse is when small traders make some money trading reports by luck, the first few times. Then, they feel invincible and make it a habit out of it becoming more and more reckless. Over trading & revenge trading follows.
Build the habit of only trading the chart using appropriate risk management [1% rule], so that you are not as worried about the money on any single trade.
TRADE THE CHART, NOT THE MONEY is the best advice we got in our early days.
Over the years, we have attempted every trading technique, methodology and technical indicator under the sun. Like all traders, we have made many mistakes, some blunders and finally converged on to a technique that has worked consistently for several years. This technique helps preserve equity and builds good gains over time. We hope this technique can add value to your trading journey too.
Step 1:- Understand the high probability wave structure. The best waves to trade are Wave 3 and Wave C because they generate huge gains. We analyze and filter over 25+ commodities, forex pairs, indices, stocks for these wave structures every few hours. Once this is identified, we select instruments mainly with Wave 3 and Wave C opportunities. So, we take care of this step for you. With more practice with us, you shall also be able to identify these structures.
Step 2:- Once the wave structure is clear, key supports OR resistances within this high probability structure is identified
NOW, HOW SHOULD ONE TRADE THIS ?
1. Trade each Key Support OR Resistance with tight SL. Tight SL is generally 15-20 pips/point around the key level. If the SL gets taken out, wait till the next level is reached and REPEAT......
When the key levels hold, the micro-trend reversal shall generate GIGANTIC gains. Eg. Our GBP/USD trade last week with +250 points in just 2 days or BTC/USD with +600 points in 15 days.
One might risk a few points on stop losses in this process. For Eg. The first support/resistance may not hold resulting in loss of 20-30 pips. The second/third shall then be tested and one of them shall hold.
2. Always enter with a very small position and then add more lots in the direction of gains to ensure that the loss is very small in case the trade does not play out. Loss on any trade should not exceed 0.5-1% of your total trading equity. Any bet bigger than that is NOT WORTH IT. GET RICH QUICKLY does not work in trading. Only patience, perseverance and persistence works.
3. Once the position moves into decent gains, trail the SL from low risk to zero risk. As gains build, avoid closing the positions early. Instead, trail SLs to continuously lock gains. When the technicals look over-extended, book gains completely. We share updates continuously on trailing SLs to cost, locking/booking gains.
4. The advantage of this technique is that you will NEVER average your losses, NEVER hedge, ALWAYS operate with tight SLs, small positions. It will always PRESERVE YOUR EQUITY. There may be a few SL hit trades with loss of 15-30 points each, but the trades that make gains shall be very large. Eg. WTI Wave C from 66.7 to 60.95.
Most importantly, no tweet, adverse fundamentals, breaking news can increase your risk beyond the 15-20 points or 0.5-1% per trade. It is the best risk management trading technique.
5. If you are a serious trader, this technique with discipline shall work really well. The biggest positive of this trading technique is it shall offer you PEACE OF MIND while trading. Risk - always small and equity - always preserved. There is zero anxiety during trading.
As a trader, it is important to trade with a consistent methodology and technique. It yields great results in the long run. Apply this technique with discipline for a few months and you will begin to enjoy trading.
Please reach out if you have any questions.
Member Query: I am a small trader. In your experience & interactions with professional traders globally, please share 3 major blunders traders often make that leads to massive losses.
Reply: Most professional traders when interviewed about their early days share that they have all blown up their accounts. Three factors that rank at the top are:
A] Averaging losses and Hedging
Averaging losses continuously is putting good money into bad with a HOPE that bad money shall turn good some day. That’s not all. Small traders then add positions in the other direction perceiving it as a hedging strategy. This BLOCKS most of their capital leaving them with very little margin to trade. There is ZERO possibility to come out of such situation without blowing one’s account
B] Wide Stop Losses combined with averaging losses
Wide Stop loss trades never make sense. If one is wrong just once, it shall blow up the entire account. Averaging losses with wide stop loss is even worse. It speeds up the process. Getting it right once is more dangerous. It compels one to do it again with more capital and larger exposure.
Example 1: - In Dec 2018, a WTI trader shorted at $44, cost averaged at $45, $47 and so on, setting SL at $55. SL hit blowing up the entire account.
Example 2:- Another WTI trader shorted at $47, cost averaged through $50's, then went long [Hedging] at $57 through $60s blocking all his capital leaving very little free margin, finally blowing his account.
Example 3:- OptionSellers, a very popular hedge fund, lost $150 million of its Client’s money in 4 days when Natural Gas spiked to $4.9 in Nov 18. Averaging with no risk management bankrupted the company in just 4 days.
C] Trading on a poll of buy/sell calls on large forums without understanding the fundamental/technical basis OR Trading on Headlines/Reports
Most professional traders completely shut off from large trading forums because it has a tendency to influence one’s decisions, evoke emotions and create crowd psychology. This inevitably leads to over trading and revenge trading.
If you want to be a better trader, shut off from all buy/sell polls that do not have a basis. Also, do not trade news/tweets. Do not believe CNBC/Bloomberg headliners. The headlines are always retrospectively linked conveniently for ad revenues.
Fundamentals dosen't mean NEWS or HEADLINES. Fundamentals means DATA related to an event. Always look for depth in data.
Get rid of (A),(B),(C) just for a few months and you shall see a drastic improvement in your trading performance