Faulty? Assertions....

[New Year]

Hello Partners, this is from my archives, got it from a guy with more than 10 years of trading, maybe somebody can get something of it, more to come...
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Success in any business often occurs when you do the opposite of what the majority is doing. I think that speaks for itself. However, most traders I know act against this maxim. They want to hear from the so-called "successful traders" what they are supposed to do. They then try to imitate these strategies or even try to trade in the same way as "the successful trader". As a rule, this does not lead to the desired success. I will now look at some classic recommendations from the trading literature and do just the opposite of what these well-meant advice suggests. I am not saying you should do this as well. I do not give any recommendations anyway. Everyone is responsible for his own trading and his own luck. However, I hope that thanks to this thought experiment; you will come up with new ideas. Perhaps it will enable him to look at his own trading in a different way.

#1
The first assertion or classic recommendation that I would like to attack is: "cut your losses and let your profits run". Every trader knows this decree. You can find it like a mantra in almost every trading book. At first glance, there is not much to be said against it. It certainly makes sense to everyone that in order to make money on the stock exchange; a trader should lose as little as possible and again as much as possible. However, I put this sentence into question, especially when dealing with shortterm trading or day trading. If you look at the background of this saying, you will find that it comes from a very specific corner, namely from the corner of the trend follower. Trend followers are traders, whose philosophy is that they always see stocks and markets in long-term or medium long-term trends. As a result, these traders will try to follow the trend. If, to put it simply, they have identified a trend in a stock or in a market, they will buy it. They then try to stay in this market for as long as possible until their system signals that the trend is over. Once they are in a proper trend, they earn money, of course. That is the reason why they say: let your profits run. Therefore, they follow the trend as long as it exists.

This is a clear, rational behavior. Unfortunately, this method does not always work. Sometimes, a trend follower buys a market that has moved in a certain direction and then experiences that it stops to move. The trader has a position, but this will not yield him any profit. He does not lose anything, but neither wins anything. He just loses his time. In addition, the opposite of what the trend follower is hoping for happens too. No sooner has he bought, than the market turns, and the position begins to lose money. That is why the first part of the recommendation is to limit losses. As soon as a position goes into the loss, the trend follower must close it and take the smallest possible loss. He must therefore be willing to take small losses repeatedly. It is not at all obvious; that the market goes in the desired direction the moment the trader has bought it. This case is even more of the exception. The rule therefore is that it first goes in the unwanted direction. The difficulty, of course, is to determine whether the trader is merely dealing with a temporary correction that should not be paid much attention, or whether this is the beginning of a real turn in the market. No matter which of these cases occur, the rule states: cut your losses. Therefore, the trend follower must close the position, whether or not his assessment is right. According to my experience, only a small group of people keeps to such a strong discipline. Although the recommendation is based on correct observation and experience, it is difficult to accomplish. This is also the reason why many trend followers have completely automated their system. The computer then decides when to buy and sell.

As important and correct as this rule for trend followers might be, it is of little use in day trading or short-term trading. Since day trading is usually performed based on a leveraged account, trend following is rarely useful here. If you plan to stay weeks or maybe months in a trade, the financing costs the broker will charge you will not stand in a reasonable ratio to the return. The problems in day trading, which I am constantly discovering, are often the result of the fact that most traders have unfortunately borrowed their trading philosophy from the trend followers. Therefore, they are also trying to maximize their profits and minimize their losses. This sounds logical or rational, but it is difficult to implement in day trading. If you study intraday charts, you will also see this. Often, the market runs sideways for a few hours in a narrow range, and then shoots explosively upwards or downwards. This usually happens after important economic data has been published. You can clearly see that the market participants are just waiting for these data.

Since it is uncertain, however, in which direction the move will occur, it is, of course, difficult to predict the direction of the price based on any analysis. Many traders are also experiencing the fact that they have correctly assessed the market direction, but still lose their position, because the market first runs in the opposite direction and takes their stops out. This happens because their stops are placed very close to the market action, because they want to "limit their losses" according to the mantra of the trend followers. Eventually, the many loss trades accumulate, and the few big profit trades are not big enough to turn a profit at the end of the week.

[DeVinci]

+ REP

[AbeLincolnBart]

Trends are exactly like rivers, eddy pools and all....

If you are not trading in a swift moving "river", trend trading is not going to work.

Regardless of time frame. Effective day-trading, contrary to some opinions - is still assumptive of an underlying trend, even if it's for 10 minutes or less.

The key here is to have some ACCURATE determinant of trend (a filter) that holds up statistically. And isn't curve-fit.

Even Bitcoin traders can have a mathematical edge, if they follow simple, durable methods that have worked on EVERY "bubble" market before this one.

EXAMPLE:


Trading doesn't have to be that difficult. The greatest difficulty is waiting for a fast moving "river".

Have a good week.

AbeLincolnBart