@ Oilman5,
Thanks your kind words. I truely believe that an aggressive trader has to know how to play a great defense to stay long in trading and prosper. You have very vast experience in the markets , why dont you continue writing your "journey of the trader " posts whenever you get time ? I used to enjoy reading your earlier posts as I could relate to each stage as I have gone through each of those stages. Do consider.....
@ VIJAY,
Your question and the answer by Oilman5 made me write a few lines as under :
Whenever the market reverses the current trend, it is responding to new set of information/environment. As the prices keep changing, it is a human nature to resist any change. So if we take an example market reverses from 6000 to an uptrend and prices start going up. At 6070 we get a small dip and it comes to 6050, most new traders will make a mistake of considering it as uptrend has ended and they go short.
Trends dont normally end in 1 day . The uptrend continues and new trader instead of buying, keeps the short position hoping that the market will come back. Then market goes to 6200....6300 and the loss becomes unbearable and he cuts his position resulting into substantial loss. Some take pride that they have deep pockets and strong nerve to hold loosing positions.Market may eventually come to 6050 again but our new trader lost the opportunity of making 6050 to 6300 and 6300 to 6050 again on downmove so total 500 points, he can catch 300-350 points atleast by being in the direction of the trend. Instead of that he keeps holding loosing positions and believe me he after holding loosing positions will be relieved to get out at breakeven if he is lucky to do so. But a person who followed the tend is happy pocketing 300-350 points and being on the right side of the market.
The same thing happens in downtrend.....people keep buying the falling prices thinking " aur kitna neeche jayega or yeh bhav me kya bura hai" where as the right action there was trade from short side till trend changes.We are traders, not value investors.
I have seen traders holding loosing positions to avoid a 15 points stoploss and eventually loosing 300 points from that trade.....but it is a double effect, they lost 300 points and also lost an opportunity to make 300 points by being in trend so total effect(loss )of 600 points to the ledger.
Trust the above helps...
Smart_trade
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