If you're struggling with your trading results, it's likely you fall into one of these categories:
- You are opening too many trades.
- You are not opening enough trades.
The second category is not so bad. Guiding someone towards profitable trading who is too rigid with their trade entries or too scared to pull the trigger is much easier than with someone who has the tendency to gamble or get over-eager.
Unfortunately, it's likely that you fall into that first category though.
Why?Because most people struggling with their trading results find it's because they're opening too many trades. They might be opening all the right trades, but they will also inevitably be opening a lot of the wrong ones as well.
Addressing that issue can be quite complex, because there isn't a 'one size fits all' solution to it. However, in this post I want to discuss a couple of points which should, at the very least, get you on the right track to overcoming the problem of over-trading.
It won't solve it completely, but it will be a step in the right direction.
Remember Your Default Position
Trading rules can sometimes seem a bit counter-intuitive. Take, for example, what most people consider to be trading rule #1: 'protect your capital'.
Beginners will often challenge this rule and ask, "but isn't my focus to make profit?".
It seems odd to think how protecting your capital is the first rule, when we all know you have to risk your capital to make a profit.
If the aim is to safeguard our money, wouldn't it be better to just not trade at all?
Well yes, it some cases it actually would be better.
New traders can often feel a bit anxious when they don't have a trading position open. This is due to a misconception about what their default position should be as a 'trader'.
They think: if you are a trader, you should be trading, which means you should be in a trade.
It's this line of thinking that leads new traders to feel like they are doing something wrong if they aren't in a trade during their trading session.
But, this is actually the exact opposite of what you should be doing.
In fact, the default position for a trader is to do nothing.
That point is so important that you should take note of it and revisit it frequently (those of you that are extra dedicated should get it tattooed on your forehead - free t-shirt for anyone that actually does this).
That's right. Being in a trade is not the default position for a trader - NOT being in a trade is the default. Or at least it should be.
This means, when you are deciding whether the situation calls for you to take an action, your 'go to' action should be to do nothing. This will ensure that you are much more selective about the occasions when you are willing to risk your capital.
Remember, rule number one: protect your capital.So, let me reiterate before we move on to the next point...Your default position as a trader, is to do nothing.
Set Traps, Don't Be a Pip Hunter
The next important point is related to our default position.
If our 'go to' plan is to do nothing, it means we have to be much more selective when we're looking for a trade entry. However, this is the opposite of what I see traders doing.
Since there is this misconception that we need to be in a trade to be trading, it means traders start 'hunting' for trades.
Earlier this week I had a Skype call with one of our course members who has a tendency to do this. My advice to him was:
Instead of chasing the price around, like you're trying to catch it with a net in your hand, you need to set traps and wait for the price to come to you.
This may seem like an odd analogy to use, but in this situation it's spot on.
Since we use candle wicks and bodies to anchor our tools and map our technical analysis, it inevitably means there are always different variations of how a level can be positioned.
However, they aren't all significant levels - only one of the variations will be. It's our job to choose which one is correct and, usually, it's quite obvious just by using some logic.
Once you learn the tools and concepts of the Duomo Method properly, you can look at a chart and instantly see whether the levels are mapped correctly or if they need some adjustment to be correct. This sort of intuition should be driving the trades we take.
Unfortunately, the reality is very different. Many new traders will choose the variation that gives them what they are looking for. In other words, they want a trade right now and they will adjust their significant levels until they get the correct confirmation to open one.
This means, they are trying to force the significant levels to fit what they want to see. They are hunting the trade entry, rather than waiting for it to occur.
Since we know only one of the variations can be the correct significant level, by trying to force the trade you're usually going to end up with something that looks similar to a significant level, but definitely isn't.
Instead, the approach you should be taking is the equivalent of setting your traps for the price. You analyse the chart, without letting yourself be influenced by the current position of the price. Mark down all the significant levels in the logical place they should be - and then wait for the price to interact with them.
Wait for the price to fall into your traps, don't chase it around with a net in your hand trying to capture each movement with a significant level just so you have an excuse to enter a trade.So let's reiterate the two important points:
- Your default position as a trader is to do nothing.
- Wait for the price to interact with your levels, don't force fit them around the current price just to get an opportunity.
To conclude, by focusing on these two points, you will achieve a very important approach for any successful trader... Being proactive with your trades, rather than reactive to price movements.