[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.
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.”
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.