Statistics of successes and failures of traders in the financial markets is unbiased: the vast majority of traders lose money, while only a small percentage of market participants consistently receive profit from price movements. What prevents traders from achieving stability?
The overwhelming majority of traders trade at the moment when, in their opinion, there are optimal conditions for entering a deal. Most often, they provide some kind of analysis, technical or fundamental, as a basis for making decisions, and rely on the fact that their pricing model works, as history tends to repeat itself. However, if a particular model contradicts the current market trend, there are no guarantees that it will work and the deal will succeed, since the market, as the well-known stock trader Jesse Livermore said, has a tendency to move along the line of least resistance.
Studies show that traders tend to buy at market lows and sell at market highs. Of course, in a particular transaction, this may be justified. You can immediately recall a dozen tactics that use overbought or oversold markets, or support/resistance levels from which the price can push off in order to trade against the trend.
But such an approach in the long term does not provide stability. If a trader takes into account the trend and is not afraid to buy a growing asset, and sell a falling one, he will ensure his long-term success in financial markets by at least half. To expect that the falling asset suddenly stops and takes off is neither justified from the standpoint of the logic of price movements, nor from the standpoint of the expectation of transactions against the trend.
A Bid on a Technical Analysis
The main task of technical analysis tools is to identify an asset that could potentially form a strong direction for price movement and provide an opportunity to join the upcoming or current rise or fall.
Most traders view technical analysis as a prediction tool that allows you to understand when an asset grows or falls. In other words, analysis for traders becomes the primary decision-making tool, whereas it is secondary to the main factor — price changes directly.
The price is primary, and technical analysis allows determining the moment when the conditions for entering the market against the background of the developing price movement will be optimal from the standpoint of the risk/profit indicator. Trying on the basis of indicators, whether levels, to understand where the price will stop, at what point it will go up or down – this is an incorrect use of analysis tools and a guessing game rather than the correct use of analytical tools.
Price movements, primarily trends, should be the main tool of a trader, while technical analysis tools can help find the best opportunities for opening and closing a transaction, but to a lesser extent should be the reason for the transaction.
Belief in the Trading System, But Not in Yourself
The need for a system is not an axiom. Of course, all market participants are aware of its importance for stable and successful trading, but for most of them finding some effective system becomes the main goal, sometimes even more important than accumulating personal experience in making deals and tracking price changes.
In financial markets, there is no one correct set of conditions from price formations and optimal timing to constantly earn. Trader’s experience is the best prompter, and framing the experience in a trading plan for a given transaction is important, much more important than just going through the optimal analysis tools for filtering trades or trying to reduce drawdowns within the framework of the “system” created by a trader.
The presence and use of the trading system has a serious psychological trap. If the system causes losses and does not allow a trader to achieve the goal, then a trader tries to improve it, optimize it, completely forgetting that only a trader is responsible for making transactions. Putting the trading system between himself and the market, a trader falls into the trap and disclaims responsibility for the transactions made, although he does not notice this.
You can earn in the financial markets without a trading system. If you fail to create an optimal strategy – there is no need to try to go in this direction, it is better to develop your experience and your professional intuition regarding price changes. As already noted, there is no “grail” on the financial market, and every trader must determine for himself what will allow him to earn.
Stability and financial freedom for most traders are the goals for which they come to the markets, in particular, to the cryptocurrency market. However, there is no guarantee that a trader every week or every month will take profit from the market. There are unsuccessful trading series, there are even months when it is impossible to overtake the benchmark, or even earn money. This is normal things. There are no guarantees of earnings in the financial markets.
If a trader agrees with this statement and does not, by all means, try to jump higher than his head and, by all means, earn money during the reporting period, he will remove from his shoulders a heavy burden of responsibility for compliance with the requirements that are usually placed on successful traders.
The most important thing is stability in the long term, and it can be achieved only if we accept the unsuccessful trading results as an integral part of the work in the markets.
Profit and stability will come by themselves, as soon as a trader realizes that the financial markets are a bit more complicated than in the books on how to make money trading.