When I first started trading in 2007, I was compelled by the trading opportunities and all-day-long trading sessions. I read the descriptions of indicators and placed positions accordingly. However, after losing a couple of thousand dollars in a few months, I finally understood that 'this simply does not work'.
When RSI is in an overbought region, placing a short position simply did not work. When price hits the lower band of Bollinger Bands indicator, price simply did not rise. Then I realized that trading does not work as it was supposed to be.
This probably happens to every person who is new to trading. You simply want to trade every possible trading opportunity. But the truth is that in trading, 'Quality' is more important than 'Quantity'.
It is largely because 'the price does not move in a straight line' . The most foundational of all these principles (I would call this a law, not a principle) relates to how intraday moves are distributed.
If you don’t understand this, and trade in full accordance with it, it is very hard mathematically speaking to be profitable. Every profitable intraday trader understands this and executes according to it, whether they know it, or not (most do thought). That law is that 90% of intraday moves do not follow through to produce a smooth trend day, or near-trend day. Most days, price is spending the majority of the session playing in various sized ranges, they go a few levels, squeeze the other way, go a few levels squeeze the other way, reverse. 10% of the time then, price will put in explosive, multi-level trend moves. These moves are typically short lived when they do occur, lasting something like 1-3 hours, but can occasionally last all day. This is an average of course (you will find those trendy days tend to cluster together in reality), but even on the days that are in hindsight strong trend days, price will often take the most convoluted, trap-filled, stop-hunting pathway intraday before the 1-3 hr trend move, to ensure most traders aren’t on board. The simple way to summarize this is that 90% of the time, price “does not move in straight lines”, or “price does not move linearly”.
When you understand this, you unlock profitability, a few things become clear and then you start 'picking the most quality trading setups'.
Firstly, you cannot “predict” intraday action, it will usually take such a random, complex path, that “predictions” will only create biases that hinder flexible reaction to the action. There is nobody on earth who can successfully predict intraday price action consistently (elite traders don’t even try).
Secondly, you have to trade level to level. If 90% of price moves don’t follow through for trend days or near trend days (rather, they go a few levels, reverse, go a few levels, reverse, then eventually, explode into a trend or near trend day), it stands to reason that you *have to* lock in gains systematically level to level. This is the exact opposite of what most new traders do, and nearly all brand-new traders are constantly hunting home runs. They think every move is the next “big one”. If you hunt home runs constantly you will find that you overwhelmingly get trapped, and your good entries will very frequently go “green to red” as price runs a few levels then reverses. These “left on the table” gains add up to staggering, transformative wealth over the span of a year. Then, to make matters worse, you will frequently miss those huge trend moves when they do happen. After getting chopped up over and over chasing “home runs” on multiple moves that don’t follow through, the typical new trader will end up in deep drawdown, confused, and frustrated, then the market will often take off without them.
You need to specialize in a few trading setups, and repeat them again and again when they occur. This will bring success and wealth in trading.
Evren Çağlar
Burdur
05/22/2024
