Friday, November 22

Trading habits for losing traders


Recently, a trading associate asked if he could sit beside me and observe how I trade. Upon my concession, he set a day and came to my office very happily.

While I was searching through a few market instruments and finally found one entry in a Hong Kong stock, he squeezed his eye and waited very eagerly for my next move.

After I made the entry and finished writing the trade in my little trading book, I shut down the laptop and went out for coffee break.

He was shocked and began to ask me what my next plan would be for the day. He followed me and we did some reading of market news on website.

At 5pm, I told him I would be going home. This chap became restless and asked me when I would execute in market again as he would be keen to learn. My answer to him was over a couple of days later.

He was dazed and said my trading activity was totally not what he has been expecting. I began to give him an overall scope of trading activities and he needs to identify what would be best for his appetite.

Among many trading activities, there are speculators who trade for quick profits over short-range market movement; there are some who hedge in market instrument against their physical exposure; I belong to the third type of traders who search for a potential trend and sit over few days to 10 days of position.

Broadly speaking, a trend trader will be very proficient in reading the fundamental studies in global market and only focus on few instruments for the favourable movements. Next, he will plan for a potential direction in the market and begin to observe for a typical pattern for satisfying the entry.

Following that, risk control will be set manually into the trading platform against unexpected adversity. Finally, the target exit plan will be measured upon a series of days versus the change of technical patterns, whichever comes first!

The above trading strategy may sound simple but it will take many years for a veteran trader to execute with confidence. In my experience, many of my trading followers have mimicked exactly what I did whenever I executed a trade.

The problem has always been their hesitation of the trade activity that failed them. For example, some would prefer to wait for few hourrs or the following day after I have entered the trade. That might cause them a potential loss of missing profits when the market opened at a gap on the following day. Naturally, no one would want to trade in a runaway gap when the market edges so far from the previous intention of price entry.

Alternatively, when some students have been sitting in a profitable trade with positions similar to mine, I would time my exit despite the market might stretch further for couple of days more. Of course, the market had also reverse very soon on following day after my exit and proved my exit to be “spontaneous”.

Separately, the trade copiers that have delayed their exit later than mine might be delighted if the floating profit stretched further. However, this is the most deadly weakness of traders who become sentimental and fall in love with their positions. The reluctance to make an exit being misled by their own greed will eventually turn the trade into a sour situation.

Many times, when the market prices reverse back into adversity and reduce in floating profit, the trader will fall into anguish state and keep hoping for the market to recover their previous price level. Some might even turn into depression or develop boisterous behaviour being affected by the market volatility. Usually at this juncture, I would have planned for a second entry for another market instrument or stock counter after completing my new round of fundamental studies.

Strictly speaking, a well-trained trader will possess very high level disciplined in planning for an entry and exit without engaging too much sentiment in the actions. Every trade action is a new execution and should weigh independently from the previous position.

Once you fall into the hesitation of thinking should you or should you not do any action in the market, the general outcome is always stay put and observe further. Ironically, the eventual decision will always become a gamble of luck and flamboyant in flirting with your thought.

Trading is all about finding a good position for entry. In that case, stay focus in searching for it. Once it is accomplished, set your risk control and forecast your exit in the next step, be it an intraday positon or trend trailing.

Keep on repeating the winning formula until you become a seasoned character in the market. That’s it and nothing else!

Dar Wong is a veteran with 30 years of trading experiences in global market. The expression is solely at his own. He can be reached at [email protected]