The trend of the market can be determined in different ways. We as traders need to be on the right side of the market in order to make money, so being able to determine the trend of the market is essential to know.
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Moving averages
We use moving averages to determine the trend. The moving averages you want to add to your chart are the 8 exponential moving average and the 21 exponential moving average. Make the color for the 8 exponential moving average green and the 21 exponential moving average in red.
If the 8 exponential moving average(green) is above the 21 exponential moving average(red); then the trend is bullish. And inversely, if the 21 exponential moving average(red) is above the 8 exponential moving average(green); then the trend is bearish. See the example below:
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Trendlines
We can also use trendlines to determine the trend. Typically, you would draw your trend line from your significant high/low and place it on the higher high/low or the lower high/low. We generally don’t want to break the bodies of any candles when drawing the trendline. See example below:
FEAR
The hardest mistake to avoid when trading is letting emotions drive your decisions, like fear or greed. This will lead to poor choices and big losses. Fear results in no clear plan, overtrading, and not managing risk correctly.
To begin, let us understand that fear is not just normal, it’s necessary. Trading without fear is like driving without breaks. You may feel invincible, but you are heading for disaster. Fear keeps you grounded, makes you cautious. In trading fear is your best friend. It forces you to do your homework, analyze your trades and stick to a plan.
It’s about balance, too little fear, and you are reckless, too much fear and you are paralyzed. Learn to manage this fear by having a plan, attending webinars and connecting with other traders. See fear as a tool not a hurdle.
Various forms of fear will include the fear of being wrong, fear of failure fear, fear of losing money, fear of missing out, fear about anything you can imagine, Fear is the common denominator.
Fear of being wrong
The fear of being wrong leads to disastrous outcomes when trading. The result is it makes you afraid to take risks and you take enter a trade way too late or you don’t cut a losing trade when you are supposed to as you are attached to being right. We have all heard the old saying, “it’s not a loss until you close”.
Fear of failure
We have all heard that 90% of traders don’t make it. We are all afraid of becoming one of those statistics or even more afraid of not being part of the 10% that are successful.
The fear of losing money is real. Losing your hard-earned money or seeing your trading capital go to 0 is scary. Trading isn’t like riding a bike, you don’t just scrape your knees and get back on, losing money is a big fall, and everyone fears that.
Fear of losing money
One of the biggest problems with day traders is they have unrealistic goals for trading. A trader who wishes to make 100% return this month must be prepared to lose 100% next month. An unrealistic return means the risk is too high.
No matter how hard we try, there will be trading losses. Even the best traders in the world continue to have losses. Trading, like any business, will have good and bad days depending on market conditions.
Losses are part of the game, so it is best to trade only when you are presented with the correct market conditions and ranges.
You wish to quit your job and trade for a living which implies you must pay the bills monthly. If you are not earning enough, then losing the money can sting you. Losing money as a beginner in trading is very common and yet we try every possible way to not lose, which is impossible.
A DAM IS FILLED WITH MANY RAINDROPS
Fear of missing out.
There are many experienced traders who consistently do make money, if I am unable to do so, I’m missing out on this great opportunity.
The market is moving and I’m not in it, this fear of missing a trade will often lead to entering too late or pre-empting a move and entering too early with disastrous results.
Some ideas for reducing or overcoming fear include:
- Define your edge. Understand yourself and know if you are better suited to aggressive intra-day trading or if you would be better suited to a longer-term approach.
- Invest in your education. Havin an understanding that markets are constantly changing and that your approach and trading strategies will need to change according to current market conditions.
- Having a trading system that you trust which combines many strategies and can be adapted to current market conditions is probably the quickest and easiest way to reduce fear.
- When feeling fearful, reduce your position size to a point where do don’t really care about the losses, then implement a trading strategy and trade until your profits become consistently profitable, it is at this point where you can slowly increase your risk per trade.
- Do not open many positions at once. Traders are often tempted to have many open positions at one time and the result is utilizing too much available equity in margin, and if there is a spike against you, the result can be disastrous.
- Define your trading plan. Set a clear set of rules for yourself which includes money management, risk management and rules for entries, take profits and stop losses.
- Keep a trading journal. Write your trades down and make a comment of how you felt every time you took a trade.
- Keep it simple. While market news is important, try to keep it to a minimum as an abundance of information and advice can often make us confused, resulting in us not sticking to the trading plan.
- Control your risk management. Losing control of your risk management can lead to overleveraging where traders take on position sizes that are too large relative to the account capital. This increases both profits and losses, increasing the likelihood of devastating losses.
Trading is simple but not easy and this is due to the emotional challenges of fear and greed. We hope and trust that this message has assisted you in a small way to assist you on your trading journey.
“TRADING IS THE MOST DIFFICULT WAY TO MAKE EASY MONEY”