This is a great tip because this is one of the keys to trading. It is the most logical approach but in the heat of battle, often the most difficult to implement. Master this and you will see a difference in your trading.
I will explain why.
Many traders look to take the easy way out by looking to buy low or sell high but as I will show you, this is often the wrong way to trade. This is not a way to trade with the odds on your side and the way to become a successful trader.
Have you ever been sitting in front of your screen and all of a sudden a currency dips or spikes by 30-50 pips?
My gut reaction and I assume yours as well is to buy the dip or sell the rally hoping for a quick turn.
It is a gut reaction that I have to fight to this day, which is to take what looks like the easy trade that often turns out to be the wrong trade.
Have you ever had the right position, say in a downtrend, take your profits only to see the currency fall another 50 pips?
What do you do then?
Do you re-establish the short position 50 pips below where you just got out or look for a level to buy for no other reason that you cannot sell at the lower level?
Many traders look to do the latter, which is again the easy to enter but often the wrong side to trade.
In these cases, you may find out the hard (to find a good entry with a reasonable stop) trade is often the right trade.
What is the hard trade?
- The hard to find a good entry level trade
- The hard to find a trade with a good stop
- The hard for you to pull the trigger trade.
Markets rarely give you an ideal entry level and when in a trend, finding a good one may be even harder to find.
This lures many into buying or selling at what looks like a bargain price only to see it turn out to be a sucker bet.
Of course, there are exceptions but as a rule, the hard (to find a good entry) trade is more often the right trade.
Look at this chart. There was a nearly straight line move up with no obvious place to put a stop. The farther it moved from the low the harder it was to find an entry with a reasonable stop. The easy trade would be to try and pick a top before there is a reason to do so.
This may sound simple but I believe it is one of the keys to trading. Master this and you will see a difference in your trading.
In future articles we will discuss how to find an entry with the hard trade that in hindsight afterwards will in fact turn out to be the right trade.
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