Don’t Be a Bluegill
The bluegill – a small freshwater sunfish – has such a tiny brain that you can catch the same fish over and over again over the course of a morning. Because it has such an inefficient memory you can hook the bluegill and throw it back, and go back to fishing and hook the same fish several minutes later!
Many beginning traders have the same tendency when it comes to trading. They have such an attachment to an opinion, or a trading tactic, that they continue to do the same thing over and over again and each time the market hooks them. The way to avoid this is know how to categorize a market’s higher-time-frame trends, which more times than not will give you market direction. Then trade small and be patient. Take advantage of the market taking advantage of everyone else by buying a dip in a market where the daily trend is up, and selling a rally in a market where that same trend is down. It sounds simple but it’s amazing how many of us outsmart ourselves and don’t do the right thing at the right time when we should! Look at almost any currency chart on an hourly basis and the one thing it will do, regardless of the overriding trend, is go up, and go down.
While the first thing we notice about this chart is the bull channel it is in , what you need to notice is the two 50% retracements followed by the .382 retracement, which all occured after the daily trend had shifted hihger. Even if your timing is off a little bit, if you have a small position, and you are patient, and trading in the same direction as that long-term trend, you are going to learn to avoid the obvious mistakes which plague so many new traders.
To attend a live, interactive webinar next Wednesday at Noon CDT on how to determine market direction go to: Overview of Directional Lines
Jay Norris is the host of Live Market Exercise, a complimentary service for clients of Clovernest Financial Group, and the author of Mastering The Currency Market, McGraw-Hill, 2009. Jay’s second book, Mastering Trade Selection and Management, will be in book stores in May.
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.