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How to Avoid Dumb Trades and Make Money Doing it
It seems that almost everyone at heart wants to be a swing trader. It is human nature to look to buy low and sell high but it is this tendency that leads to taking dumb trades.
This does not mean swing trading is not a profitable strategy but only when the stars align. Otherwise, it can lead to buying when you should be selling and selling when you should be buying in the HOPE that you can catch the bottom or top. This is what I define as a dumb trade. The word HOPE should not be in your trading dictionary.
So the question you should be asking is how do I get on the strong side (i.e. the side less likely to get stopped out) of the market and start making the smart trades.
One way is to accept the principle that the forex market lives to run stops and that the strong side is the one where there are no large stops to run against your position. In other words, if there are no key stops to run on the upside then the strong side to trade is on the sell side. If there are no key stops to run on the downside then the strong side to trade is on the buy side.
It sounds simple but in practice it can be a challenge.
Many traders find them taking dumb or low percentage trades because they lack a strategy that allows them to take the smart trades. Let me explain.
The farther the market moves from a key level (e.g. high or low), the harder it is to find a good level to enter a trade on the strong side with a reasonable stop. This leads many traders to take what looks like the easy trade by buying when a currency looks cheap or vice versa because it is hard to find an entry level with the trend where you can place a stop you feel comfortable with. I call this a sucker bet that leads to a dumb trade.
I other words, what looks like the hard (to find a good entry level) trade more often than not turns out to be the right trade while the easy to enter trade turns out more often than not to be the dumb trade.
This is not theory but reality. I have tried to outguess the market and take the easy trade more times that I care to remember so I am speaking from experience.
How did I overcome this?
The answer is by finding a strategy that takes the hard trade and makes it the right trade. This is accomplished by being able to identify a level to enter a smart trade with a stop you feel comfortable with when there might otherwise not seem to be one close by. The strategy will tell you when it is time to go the other way but not prematurely that would more often than not produce a dumb trade.
So, remember to take HOPE out of your trading and avoid taking dumb or low percentage trades y following the logic described above
If you want to learn about a strategy that does just this, send an email to [email protected]
Jay Meisler, co-founder
Global-View.com
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