3 habits that prevent traders from making profit
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  1. #1
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    3 habits that prevent traders from making profit

    Hi traders!

    Successful trading is often not about unique trading system, it’s about doing certain things over and over again, or I would rather say – not doing them. Many beginner traders often do the same mistakes over and over again and if you would simply avoid what they do (or even do the opposite), you would get an edge on the market.

    I created my own TOP-3 list, you can add some more in commentaries to this post. I haven't uncluded money managent here, just chart patterns (market behavior) that traders fail to read properly.

    Selling «expensive» and buying «cheap»

    Most popular version of this principle is «buying bottoms» and «selling tops». When price suddenly breaks out from some range (say, to the upside) and starts to move rapidly, most traders will sell against this rally. That’s an instinct. If we’ve seen before small volatility and absence of significant price action to whatever side, we tend to deny breakout, we treat to new prices as «unfair» and rush to open a trade. Why in this case most traders are in hurry? They thing that current price action won’t long last and price will quickly drop back to the previous trading range.

    Look at yesterday’s example of NZDUSD:

    catchingtops.png

    It has rallied heavily, and believe me – there were many traders caught in short positions. Price has finally moved back to day opening, but I’m not sure that any short-sellers could benefit from that movement. You can’t enter short position (or long position, any position) if you don’t know your risk, if you are unable to calculate or estimate it. You can, of course, but it won’t be low risk trade, your risk will not be defined (don’t tell me that you know your risk because you have your stop-loss)

    So, in most cases shorting against such rally can be only reasonable when market is overbought and ready to liquidate to the downside. Such situations are pretty rare and this topic goes beyond our post.
    To avoid catching tops and bottoms, I recommend to switch between timeframes from time to time.
    What is cheap for one timeframe trader, may be expensive for other timeframe trader.


    Catching the «whipsaw»

    The second habit of beginner traders is to be aggressive after big price swings. Let’s say, we had news announcement and market reacted emotionally, We can see whipsaw with significant volatility.
    Most traders, who are bored with previous low volatility, think that market is going to move now more rapidly, more aggressively.
    But truth is that often market consolidates for 2-3 days after that, nothing happens, volatility goes down again. It’s very easy to be caught in such price action.

    settle.png


    «Trading near support» (resistance)

    Third habit is too much reliance on horizontal lines that are considered to be support or resistance. In fact, support and resistance are often areas, not lines. I mean, real support and resistance areas, not local levels where day traders put their positions.
    When support/resistance «line» is already visible for everyone, it no longer provides good opportunity. Many traders can see those lines, they can calculate risk and they will enter either to the short or to the long side (trading breakouts or reversals) placing their stops beyond this line. So, a lot of orders will be concentrated near those lines, and market will not have reason to leave this level – the more liquidity it has near certain level, the less reasons it has to go away from it. The most expectable scenario is «whipsaw» near such «levels».

    whipsaw.png

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    i was often trapped by this situation , trading near support resistance, and it made me spent much time to wait for several pips and also too risky because i did not know what steps will happen to me. so hard for me to see the true direction at this situation. then to handle unwanted situation, i just made pending order as hedging (no stop loss or cut loss )

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    As you said we should not rely more one the single line like the support or the resistance at one price because many times the market keep on ranging between the zone of the price which is bounded, so in that case it is very necessary for you to consider that zone and trade when price get out of the zone.

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    Quote Originally Posted by newentry View Post
    i was often trapped by this situation , trading near support resistance, and it made me spent much time to wait for several pips and also too risky because i did not know what steps will happen to me. so hard for me to see the true direction at this situation. then to handle unwanted situation, i just made pending order as hedging (no stop loss or cut loss )
    Its very good for traders to know their faults in the market all the time, and b this, traders will be able to locate the solution on the other times they wanted to do that mistakes, I believe that you have learned your lesson, no one is above mistakes , but the ability to make correction counts the most in this business sir.

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    yes i guess that is good to focus on working to avoid the entry with the support or resistance with the order and to work more on the further analytics on the time or sessions and the characteristics of the chart profiles to work on the best with the support of the system by the choice.

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    Last edited by lawners1791; 05-08-2014 at 06:10 PM.

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    Quote Originally Posted by lawners1791 View Post
    yes i guess that is good to focu son working to avoid the entry with the support or resistance with the order and to work more on the further analytics on the time or sessions and the characteristics of the chart profiles to work on the best with the support of the system by the choice.
    Well working on an entry point surely is very great after all. All traders need to know that entry point in this business is something that we really need to pay attention with. And then about the resist point and the support might be the point where we can make the strategy or risk management. And surely because of that we can calculate how much money we will earn in one shot.

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    I agree with you and your post is very useful for all trader. We know that without learning we never able to make money from here. So we need to learn and we need to do hard work for making profit. We need to learn from our mistake and we need to trade with carefully. We should remember that we don't make same mistake again and again.

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    This is a good education tools and I am trying to get lesson from it. I faced many problems with such a situation and I hope this lesson will help improve my skill to this effect. Even I cannot able to take appropriate decision in the appropriate time which causes huge burden in my trading. Trying to improve the situation, This lesson is very effective to me.

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    One of the ways that kills traders is the aggressive trading, and the mood of the trader to enter the market because of what they call the price movements, this will not make the trader get success, no way. In the case of the whipsaw in the forex market, traders get to be carried away by this, but that does not mean it will not fill back.

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    I see that it is very useful article but i see that the most bad mistake for every forex trader when say we should by because the prices is low or we should sell because the prices is cheap.In forex market they are nothing called cheap or expensive we should only depend on the strong resistance and supports and put a take profit in the new support or resistance and we should set stop loose if we break a strong resistance or strong supports

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