Posted by: joetradingplace | January 24, 2013

Trend Trading

Euraud short has been stopped out at half the initial risk, a loss of 0.5 percent of the account. We focus on cutting our losses when the market is not favourable for our trend following method. We are trend followers and in market conditions like this, we tend to get some small scratches or  small dents to the account, but as long as we cut our losses, we can live to trade another day. Looking at all the pairs we trade, they are all moving sideways and if we manage to get out with small scratches we are doing ok.

Some people might say if you are trend traders, why don’t you stay out when the market is moving sideways and then trade when its trending. We dont have a crystal ball and no one have, so nobody knows when the trend will start, how far price will move or when the trend will end. So even when the markets are moving sideways, we keep trading our setups, thats when the importance of cutting losses come into play…and then we let our profits run when the market is trending, so the small scratches we suffer in sideways markets are easily covered by the huge profits we take in trending markets.

Dont try to guess how far a trend will go, you will definitely get hurt, because by doing so you are trying to pick tops and bottoms. And your account will let you know that you are doing it wrong, because you will see a big dent in your account. Remember price makes the news not the other way round. Economic figures or company earnings can be doctored, but the traded price can’t be fixed, it’s the only number to believe. How many times have you watched market drop after a positive news outcome, and how many times have you bought a market on good news, only to drop and stop you out. Our job as traders is not to argue why price is behaving that way, our job is to systematically sift price to find trends and act on them and not let the latest news affect our market opinions or our trading method.

Many traders try to make a killing on one trade, so instead of risking less than 1 percent of their account, they put more risk thinking they will make more. When you are trading with a very high stake than you are comfortable, you are more likely to be emotionally attached to a trade, you don’t even want to leave your desk, you will sit on your desk and watch pip by pip. If you are still doing this, you are trading with scared money and it hinders your trading decision…Reduce your trading size to a more comfortable size, place your trades with stop-loss order, profit targets and walk away from the desk…let the trade take its course without you fiddling with it.

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