How To Avoid Getting Tricked Into Taking Losing Trades
Those are just 2 examples of how losing traders get tricked into
making wrong assumptions about price movements, but if you can
understand the psychology and thinking behind them, you’ll be able to
understand the drivers of price action and the herding behavior in
general a lot better.
Tips On How To Avoid Stop Hunting:
- Don’t use the obvious levels for your stops. Big round numbers are a
very bad choice for picking your support and resistance levels.
- Research shows that exchange rates trend faster after crossing round numbers suggesting that stop-loss orders propagate trends.
- Stop-loss orders are tightly clustered near rates ending in 00.
- Add your spread + a few pips of extra padding to your stop. The padding is key!
- The more people talk about a certain level, the harder it is to profit from it.
- Add a column in your trading journal and keep track of how far price
moves against you. This is an excellent way to see if you enter too
early or place your stops too conservatively.
- Get in the heads of the average retail trader. It’s usually very
easy to figure out what they see on their charts and want to do. Then do
the opposite.
- Use confirmation criteria in your trading as an extra filter
- If a trade is too good to be true, it’s too good to be true
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