Think Like A Trader Blog

Thursday, 20 August 2015

Don't Stress over Trading Noise

Reading Time – 3 Minutes

There will always be noise when you’re in a trade. It doesn’t matter what timeframe you trade, or what system you use. Trading is a zero sum game. There is always someone on the other end of your trade, expecting the market to move in the opposite direction. For every winner, there is a loser. If there wasn’t, the markets would sit in a state of constant equilibrium and no one would make any money.

It’s important to understand this because I would say, on the five minute timeframe, only perhaps 10% of my trades move exactly as I wanted as soon as I enter. Now these trades are very nice because there’s no doubt or drawdown along the way. But they are very rare.

Trading is literally like a battle. The Bulls versus the Bears. When one side is more powerful, they influence the market. But their influence can be short lived, and it is never an easy ride for them. This is why trading is a game of probabilities. Because every trade is slightly different. No one trade will match another trade. Different emotions, different players, different amounts of capital and beliefs all drive every moment of the markets.

It’s very annoying when the market moves against you. But you must get used to it. Because 90% of the time, it’s going to happen. And on some of those occasions it’s going to happen because your trade is a losing trade.

The key is not to panic when it happens. Have your rules already set. It’s only when you begin to ‘micro manage’ trades that the problems begin. Your system will be successful because of the rules you set, because of the edge in the market that you have found. But if you begin to chop and change each individual trade, taking profits early here, cutting that one as soon as it drops too much, you’re going to be on the losing side of the zero sum game.

The noise is part of the business. No one wants to just admit defeat and lose money. So the markets chop around. When I enter a trade, when it moves against me, yes, I STILL think ‘This is a losing trade. Cut it and walk away. You shouldn’t have taken the entry’. Any trader who tells you they don’t experience this, at least on some level, is lying. It’s human nature and it doesn’t go away.
The trade I’m currently in on the Ftse 100 jumped into profit as soon as I entered…and then it stalled, reversed, and fell to -10 points. Not nice. But it happens. The key is, I stuck to my rules, as I always do. Why do I have a predetermined stop level if I’m then going to exit as soon as it moves against me? Guess what, the trades now +13, two points from target. As I’m writing this I’m sure it will complete.

Get used to the noise and learn to follow your plan. Don’t read the market on every tick. Accept that you truly DON’T know what the market is going to do. You have no control over the market. But you do have your trading plan that produces an edge. And that you CAN control.

I hope you’ve had a great trading week!

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