Some traders have an uncanny ability to be able to call the market tops and bottoms ahead of the rest of the market.
These traders are the ones to likely be found breaking the rules of moving stop losses.
These traders enter to early on these trades,and suffer losses before eventually getting on the correct side.
There belief in their idea is so strong that they get stuck and keep executing from that side, when that happens these traders can lose a significant amount of equity.
So much so that when the trade does come, its really only an opportunity to get back to flat.
(EVEN) These traders know that a bull market can stop being a bull market long before prices stop moving higher, and conversely a bear market can stop being a bear market long before prices stop moving down, this is what these traders are recognizing.
They are looking ahead and can see the far greater potential on the other side of the market.
They know the turn is coming, and start to think ahead about the huge profit potential.
This is the beginning of the dilemma.
This goes back to the old rule don't attempt to pick tops and bottoms.
With that stated we all know that a market must peak and bottom, the lowest risk and highest profit potential at at these levels.
Identifying these turns is a completely separate issue.
One way is looking for key reversals.
A key reversal is after market has tested a new or old high or new or old low.
A key reversal is a bar that equals or surpasses a high only to close lower than the open.
That is what I call a key reversal downside.
A key reversal up side is a bar that tests a new or old low, is either equal or surpasses it only to close higher than the open.
The problem is not identifying the turns, the problem is being early.
The psychology behind becoming a super trader is the issue of non-attachment.
Many traders that blow out and never developed this all important skill, and it's a shame because they were good.
They have a strong understanding of the market they trade, feel very certain their approach, and know they cannot profit unless they execute a trade.
They then talk themselves into a trade with the "time is now" feeling.
It is because they have a vested much in forming their conclusions, they place a strong belief attachment to the price that they execute at.
When traders do this to themselves (attachment to a particular price point.
) it begins a negative thought process that makes a trader believes something is wrong if prices do not react favorably in a reasonable amount of time.
That time frame is another rigid parameter that the trader makes up in his own mind.
Instead of being open and loose the trader starts to become rigid and closed.
He starts to feel stuck and gives himself very few choices.
This is the beginning of a possible meltdown in the traders account.
He will consistently keep trading the same way until it's too late.
The trader should have the mindset, if the price they selected is not at the turn of the flow than this trade will not work from that price and time in the market.
He should realize it might eventually work, and the time might be sooner rather than later but in the meantime the market is not wrong, he is! The market hypothesis that he has, might be the exact future that the market has in store; however not at this particular time or price relationship, and he is on the losing side and should step aside.
Your beliefs have nothing to do with what the market is doing.
By accepting the first loss you can remove your beliefs from the equation.
You will be able to think and formulate better again.
When you accept the loss you will understand the problem is not within the market.
The problem is within your trade hypothesis.
It will sting you, but better to be stung then hung.
You must develop the ability to be unattached.
Date your positions don't marry them.
No trader can call the exact time and price of a turn, when actively looking for them.
They will come when the trader is not attached and is loose in his thinking, not rigid.
When you do proper preparation stay non attached you'll be able to reenter at a more advantageous price point.
You must realize that you will have more wrong entries over correct entries over time.
Being emotionally attached and strongly committed to any one price area, or anyone trade could be the death of your trading account.
As a matter of fact I have seen this happen with some great traders, they got emotionally stuck and as soon as they lost a significant amount of their account they liquidated, only to have the market turn once they did.
So don't argue with the market, let it speak to you and be bold enough to listen.
Be willing to take a new fresh look at it.
Your first loss is your best loss because it tells you something very important.
A loss tells us that we are on the wrong side of the Market Flow.
It also give us other choices.
1.
Get on the correct side of the Market; 2.
If you are on the wrong side, get out.
Ignoring, blaming, justifying, getting angry does not prevent losing more or stopping another loss.
The only thing that prevents that is finding out where your hypothesis is flawed.
If you have done a good job in your analysis, you must also have a reasonable amount of willingness to admit you may be early,or your hypothesis is completely incorrect.
Suppose you are 100% correct but 3 months early, or 3 days early You will burn through a lot of capital by ignoring the lesson of the first loss.
What if you are completely wrong?Then you run the risk of ruin.
If you can honestly say that you don t care what happens on one trade, you are a lot closer to getting better as a trader.
All great traders know that trading is a process, a series of events.
Not one event where they risk it as all or nothing.
So remain completely unattached, your first loss can be your least expensive loss.