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| kotaku.com |
Are you a Bull, Bear or Pig in the market? If you don’t
know what I’m talking about, then you’re probably trading like pig and you’re
probably losing money.
As the old Wall Street saying goes: “Bulls make money,
bears make money, and pigs get slaughtered”. This saying warns traders and
investors against excessive greed and impatience. Simple as it may seem on the
surface, it conveys more than it may seem. Not letting greed affect your
judgement in the market is much easier said than done.
Let’s discuss several ways the market punishes excessive
greed, also known as ‘trading like a pig’, and some ways you can avoid being
controlled by it. So, if you’d prefer to make money in the market, rather than
get ‘slaughtered’ by it, read on…
Are you a bull, bear or pig?
Traders who have a bias on a market (bullish or
bearish), and stick to that bias without over-trading (not being greedy), will
typically make money over the long-run. Where many traders get into trouble is
trading against the dominant market bias or trend. This is an
especially easy trap to fall into if you don’t yet know how to identify a
market’s trend. However, even traders who know how to identify a market’s trend
still tend to trade against it far too often, this is called over-trading, or
being a ‘pig’ in the market.
Thus, your goal as a trader should be to simply be a
bull or a bear, and not a pig. The way that you become a bull or a bear is by
developing a bias for a market and not deviating from it.
For example: If a market is in a clear trend, either up
or down, you stick with trades ONLY in the direction of that trend and you
ignore any potential counter-trend trades you think you see. You do this until
that trend has clearly ended.
So, if a market has clearly been trending higher, you
want to look only for price action trading signals that are buy
signals, ideally from a confluent level in the market. If you try
trading all the counter-trend retraces to the downside against a strong
uptrend, you’re being a ‘pig’ and you’re going to lose money. Don’t be a pig,
determine your bias for a market and remain patient while waiting for a signal
in-line with that bias, and if no signals form in-line with that bias for a
week or two, then you simply do not trade that market. Remember, not trading is
ALWAYS better than losing money!
Unreasonable expectations
‘Pigs’ have unrealistic expectations about trading. They
think they’re going to get rich quick. Whilst you might be lured into the
temptation of ‘getting rich quick’ that many other trading sites and services
advertise, I am telling you that it’s simply not possible. Actually, if you
really believe you’re going to get rich quick in the market, I am going to do
you a big favour and save you thousands of dollars by telling you to just stop
now, stop reading this article and stop trading forever, you will be better
off. Trying to ‘get rich quick’ will only make you poor, fast.
Don’t get me wrong, I’m not trying to turn you off to trading,
I am just being honest with you since not too many other people in the trading
world will be. Traders who don’t try to hit home runs every trade (not being
greedy), will make money eventually. However, again, if you trade like a ‘pig’
by trying to make money on every little price fluctuation in the market, you’re
going to become addicted to the market, emotional, and as a result, blow out
your trading account.
Stop chasing what’s already moving
If you miss a good trade setup, don’t ‘chase’ it. Just accept
that you missed it and wait for the next opportunity. If you jump into a trade
too late, you’re going to get a bad entry which means you’re going to need a
wider stop loss and there’s a greater chance the market will move against you
shortly after entering.
Chasing trades is also being greedy. You can’t
successfully trade every move in the market, you just need to accept this.
Trading is not about getting in on EVERY move, and it’s impossible to do this
profitably anyways. All you need to do is hit one or two good moves a month and
you can take a nice chunk of change out of the market. Trading a small account
is difficult because even if you have one or two big pip gains per month, it’s
not going to equate to a lot of money. However, money cannot be your main goal
when you’re starting out with a small account. Learning to trade properly
should be your main goal. If you do that, you will eventually make greater
amounts of money.
The clearest example of trading like a ‘pig’
This one is pretty self-explanatory and obvious. But, it
needs to be mentioned since we are talking about being greedy and trading like
a ‘pig’. Quite simply, if you risk more than you are comfortable with losing on
any one trade, you’re trading like a pig and you are eventually going to suffer
an uncomfortably large loss which will set you on a course to blowing out your
trading account.
Risking more than you can really afford to lose is the
clearest example of trading like a pig. If you cannot at least muster the
discipline to tune your risk per trade to a level that you’re emotionally
comfortable with, you will not make it as a trader. The ‘barometer’ for being
‘emotionally comfortable’ with your risk on a trade, is whether or not you can
sleep well at night with a trade on. If you find that you can’t sleep properly
and you’re constantly looking at your trade on your cell phone while lying in
bed when you should be sleeping, you need to dial-down your risk until you can
easily sleep at night without thinking about your trade. Traders who practice proper
risk management every trade (not being greedy), will make money
Conclusion
As you can see, greed kills, it can kill a trader’s
returns by making them act in haste. The best trader is the one who is
intellectually flexible and dispassionate in analysis when it comes to trading.
As Warren Buffet has said “the critical determinant in an investor’s success is
not intelligence or skill but temperament.”
In other words, if you trade like a pig, you’re not
going to succeed as a trader. You can learn more about how to trade like a bull
and a bear by learning some of the simple price action strategies which I teach
in my members’ area and price action trading course. Hopefully, by
doing so, you’ll learn to develop a market bias, stick with it, and stop losing
money by trading like a pig.
Nial Fuller
http://www.learntotradethemarket.com