Overtaking on a Bend in Trading

Risks in the market

In as high-risk industry as forex, we must know where the risk comes from so that we can specifically avoid it and control it. Only by controlling risks can effective profits and stable profits be finally achieved. When it comes to risk, people generally think of market uncertainty, but this is only part of it. I will explain the composition of risk through the analysis of losses. To sum up briefly, there are three main reasons for the loss: 

• Technically 

The specific manifestations are: contrarian (local or intermediate potential), misidentification of market attributes, and frequent transactions, which then repeatedly lead to stop loss, the former will be severely hit once, and the latter will accumulate small losses and become large losses. The lack of systematization in analysis and trading has resulted in confusion and cluttered transactions. The trading system is rough, the signal indication is not clear, and the execution of opening, holding, and closing (stop profit, stop loss) swings, resulting in low profitability. The trader may have learned a lot of skills, but without a familiar trading routine, he can still suffer from low profitability.

• Fund management

Heavy position, in particular overnight and overdraft trading.

• Psychologically

Gambling, fluke and self-centered mind, too greedy to carry out the familiar trading routine.

 

Summary of the risk composition: against-trend, heavy position, abrupt transition, low profitability due to unskillfulness, gambling psychology and a lack of discipline in trading.

 

//Stop-loss in trading//

The margin leverage effect in future trading makes the price fluctuation artificially amplified, and the constraint of contract expiration keeps the trader from holding the position. When the direction of a position runs counter to market movements, the cost of time will become increasingly expensive.

In the case of unfavorable trading situation, if the correct action is not taken in a timely manner, then the trader often faces the following scenarios:

--loss the deposit margin

--loss of the book profit

--A disastrous ending for all capital due to counter-trend trading

 

It can be seen that if you want to survive, you must learn to stop loss. The stop loss should be set when the trading system has a buy and sell signal, and it should be tracked and advanced throughout the transaction in a certain way.

The width of the stop loss should match with the fluctuation of the market, and sometimes a certain time condition is added. For a medium-to-long-term trader, you should avoid frequently triggering stop loss, so as to ensure that the operation plan can be carried out effectively under the premise of correct decision.

 

Stop loss means giving up, which may be an opportunity but is also likely to be a disaster. The benefits of a stop loss are twofold:

1. When you enter at a bad timing. This does not confirm whether a directional error has been made when deciding to exit, but we must choose to leave. On the one hand, this helps to avoid the possibility of major mistakes. On the other hand, it provides opportunities for finding safer and better entry points again.
2. Directional mistake. In a counter-market situation, if you cannot leave the market in time, then you will suffer a deadly strike. The only way to avoid is to stop loss in time. Stop loss is always right even when it seems wrong. Striving to stay is always wrong even if sometimes it seems right.   

 

A common problem for many people is to care short-term interests too much to stop losses. However, if investors are full of faith in the future, the current sacrifice will become trivial, because time will bring wealth to successful investors.

Losses are only temporary and an integral part on the way to success. Giving up now is to ensure that you still maintain enough capital for more and better return in the future. Therefore, stop loss is the way to survive. It’s the pilot’s parachute and the reflection of the top principle of survival in the market.

It is important to emphasize here that the conditions for entering and exiting are not equal. The reason for entering must be sufficient and clear. However, the exiting is different, and the reason can be simple and vague. 

If you try to find a sufficient reason to exit, then the transaction will inevitably be delayed into trouble; excessive pursuit of profit maximization makes it easy for us to challenge the limits of the market and lead to greed.

We should leave some leeway and neglect the subsequent market with lower margins, so as to ensure successful investment. Many people do not understand this and always want to study the market to find the best way to close their positions, but no one has ever found it yet. why? Because there is no such answer. The answer is not in the market, but in everyone's heart. The pursuit of perfection is the performance of greed, and the imperfect way of leaving is the most perfect, so that there is the possibility of survival and development.

 

In view of this, an auto trading system can ensure the following:

First, it eases the psychological pressure of traders while eliminating many emotional disturbances. Traders only need to enter the market according to the signals of the mechanical trading system when operating. Such a trading process naturally avoid the interferences of emotions and therefore does not generate large psychological pressure.

Secondly, it helps to control risk. Trading with emotional conjecture or so-called "instinct" will only lead to greater risks. However, to trade in accordance with the mechanical trading system, you only need to bear a limited risk (execution of the stop loss price). Obviously, there is a fundamental difference between the two.

Finally, it guarantees the consistency of your trading approach. Only by using the same method continuously can the winning rate be raised, and the missing part can be compensated by executing the stop loss order, so as to maximize the overall profit.

 

//Trading psychology//

It’s normal that traders all want to make huge money in a quick time. However, this psychology not only evidently interferes with your trading, but also reflects trader’s lack of observation and summary of the market fluctuation and trading opportunities. Thanks to the margin system of the future trading market, small fluctuations can lead to huge profit or loss. Therefore, most of the time, a daily market often is volatile, and those trends (unilateral) quotes occupy the time in the entire daily K-line chart, which reminds us that:

In order to profit stably, you have to grasp the market fluctuations and focus on increase your success rate. In order to make huge money in a short time, you must judge and seize in the main opportunities of the market (i.e. market trend) efficiently. By observing and studying the short-term trading masters, we found following characteristics in their profiting experiences:  

Profits of a single order is not necessarily high, instead they trade many times with a high success rate. Through small profits they can double their fund. This is usually the case in general market situation. When the market shows a big breakthrough, the single pure short-term is a combination of short-term and wave bands, focusing on the grasp of rhythm. Although there are also risks, the overall profit is increased because of the increase of wave band transactions.