Sterling Terrell

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You are here: Home / Potpourri / How to Trade: Do Not Fight The Trend

How to Trade: Do Not Fight The Trend

How to Trade: Do Not Fight The Trend

[This is part of the series: 9 Rules On How To Become A Trader]

Rule #1 on being a profitable trader: Stop fighting the trend.

You realize you can’t make money when prices are constant, right?

So whether you are buying low – and selling high, or selling high – and buying low, every trade will involve a trend of some sort.

Now that trend may be long-term – and you may hold a position for weeks, or that trend may be extremely short-term – and you may hold a position for mere minutes or even seconds, but every profitable trade will involve some movement, or trend, in prices.

Some even think trends can help “predict” prices.

The quickest way I have seen traders get hurt is trying to fight the direction prices are moving.

When I hear people say:  “I only trade reversion on Bollinger bands,” I just want to shake my head.

Or when I hear, “Prices will always revert to the mean,” I always think: “Yeah, until they don’t.”

The sad truth is – at some point – the market can, and will, go against you more than you can afford for it to.

When prices are going against you, it is not a time to buy more!

“Fundamentally, I think the price of commodity X should be trading above price Y. Therefore, below price Y, I will be long commodity X.” is a quick way to be put out of business.

On this, I think I read it best in Sebastian Mallaby’s book, More Money than God.

He quotes George Soros saying:

“Just because the market is overvalued does not mean it is not sustainable.”

Exactly.

If prices are moving with you – hang on.

If prices start going against you – get out.

The mark of an immature trader is getting out of winning trades too quickly and being too scared to cut loose bad trades.

Be a professional about your trading – and stop trying to fight the trend.

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Filed Under: PotpourriTagged With: #Markets, #Trading

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