Simple Trend Trading

Is trading easy?

Almost all new traders believe trading is easy but the truth is that trading, like any other profession, will be difficult in the beginning. With time, based on a good education, understanding, technique and experience, trading does becomes simpler but there will always be elements which will never be easy.

Many traders make the mistake of not investing in their knowledge but moving directly to GO. They finance their trading account and immediately look to place a large proportion of it on one trade. If they are lucky the trade will fail and teach them a valuable lesson early on. If they are unlucky the trade will work out and they will congratulate themselves prematurely – a few more trades and their account will be wiped out and they will be left trying to work out how to recreate that first win.

Beyond the obvious – a lack of education – the not so obvious mistake new traders will often make is that the trade they took was probably a really bad one from the start and they did not even know it.

Low hanging fruit

Most traders aim for the spectacular – that one trade that offers a real challenge! So they enter a short at what they perceive to be the highest point of the current trend based on a reversal candle or buy at what seems to be the lowest point. They aim to catch a falling knife – if they are right then they feel good that they beat the market even though this was a high risk venture. Something to boast to friends about over a drink perhaps.

At some stage, every technical trader attempts trading reversals and at some point – if they wish to continue trading – will realises this is not a good style. What many traders fail to understand is that an established trend is stronger than a possible reversal candle. Following the trend is superior and safer with less stress and time required than betting on a single reversal candle.

Simple GBPUSD Downtrend

** You can read the original GBPUSD post by clicking here **

The above chart is a daily view of the GBPUSD. Dynamic Traders have been shorting this pair for some time based on the obvious fact the trend is down. They have been making good money for doing very little. However, no doubt there are traders who have lost money because they have gone long based on the belief the trend has ended.

There are two reversal candles suggesting the trend may be exhausted and price may reverse. While the logic is correct the stronger logic is the trend is your friend and, until we have further evidence that says otherwise, our intention is to stay in the trend until the end. One reversal candle on its own does not indicate a significant change of trend.

This trade was the ‘low hanging fruit’ we picked off with little effort. It was simple and obvious to jump in on a trade in which price was already moving in a downward direction. It doesn’t make much sense to buy the market in a downtrend as this is much more difficult to do – and almost impossible to time accurately.

To be a successful trader, it is far better to find a trend and react in line with that trend. Each morning we do this by looking for our trends and then entering the best ones. We even discuss them in our chat room so everyone is aware of them.

Improve your tennis

To become a better tennis player you should play tennis with someone better than yourself. Losing to a better player makes you understand your weaknesses and will improve your game.

The same applies to trading. To become a better trader means spending time in the presence of better traders.

Good trend trading…

Anne Chapman
@AnneTrader

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