Market Certainty

[Soultrader 12]

One element that causes traders to avoid taking losses is our stubborness to be right. The need to be right in the markets will lead to financial suicide as a trader. The markets move based on the perception of other traders; whether they are using fundamental or technical, it does not matter. Price action is the collective action of all market participants. You have hedgers, speculators, investors, etc... Do you think it is possible to understand the intentions of all market participants? A big player may short in anticipation for price to fall. Sure, this can be read through volume at resistance levels. A bot may start offering 100's of contracts above the current market price. Though there are ways to spot this, most trader do not have the tools to do so. A fund manager may decide to sell 2,000 contracts in order to balance his position. This has nothing to do with how the markets are behaving.. whether price is act at a significant resistance or not. The result is price decline without any technical reason. Here there is no way to know for sure what will happen next in the markets.

 

Trading is a game of probabilities. Losing is just part of the business. The key is to limit your losses and ride your winners. (easier said than done) And do this on a consistent basis. There is no certainity in the markets... just because all your indicators line up and the perfect setup occurs the trade may go against you. Price action is reality.. and you must learn to accept it. The market is neither right or wrong. It's just.... the markets. Thats what it is. So trying to decipher every information correctly will get you nowhere in trading.

 

So always manage risk appropiately regardless of how beautiful the setup looks. In any moment, a fund manager may pound the makets only to adjust his porftolio. This is the unexpected... the uncertainity of the markets.

[jasont 10]

That is a great post Soultrader. I must say that I previously got sucked into the addiction that is searching for certainty in an uncertain arena. I thought the key to the market was finding out why the market moved and then I could reduce the amount of times I lost. Now that I have stepped away from that mold I can see many other traders doing it where previously I was blind to what was going on.

 

It seems that we all must go through a period of wanting to be right in our trading so that we may understand why it is a futile way of trading. I personally confused understanding how markets worked with understanding why the market moved.

 

In a way the period where a trader wants to be right does help them learn about the fundamental reasons behind how markets move. That gives one the basis to find an edge to exploit and then build rules around. Beyond that though, as you say, trading is a game of probabilities. The law of large numbers is one of the best games to play.

[Hlm 10]

So always manage risk appropiately regardless of how beautiful the setup looks. In any moment, a fund manager may pound the makets only to adjust his porftolio. This is the unexpected... the uncertainity of the markets.

Nice post...and this is exactly why a stop (which by my rules can't be moved back) is automatically placed when entering the market. If I quickly get taken out by some "fluke"...oh well. My risk was strictly defined and at that point I can continue to watch the market without emotional bias. Because as day traders we all know there will be another one right around the corner.