Ten "Errors" of a Newcomer in Trading
...Third, ten "errors" of a newcomer in trading described in [1] turn not to be errors at all, but proper steps. Let us look through them one by one [1].
1. Trading when market has just opened
Since we have given up all hope to guess the trend direction, there is no need to wait for a proper moment - we should enter the market as soon as it is feasible. It would also make sense to open two positions of the same volume, but differently directed - a short one and a long one. One of them will gain profits earlier, another one can do it later, when the price returns and goes a profitable direction. At that, at the moment of opening and until either of the two positions is closed, the trade can be 100% hedged, the risk approaches to zero (we can only lose on commission, if any, on spread, and on the difference between the swaps of long and short positions provided it takes more than a day until we close them).
2. Undue hurry in taking profit
It is never too early to take the profit! We will not make our situation worse by this. If we have fixed the profit in, for example, a long position and the price has decreased by a value exceeding the spread+commission, we can buy again – we will be able to double the profit taken on the same segment, but we surely won't lose the profit fixed before! For example, we bought at 1.2300, closed at 1.2340; then the price fell to 1.2320 – buy. If the price goes upagain, we will earn again in the range between 1. 2320 and 1.2340. If we had not fixed the profit at 1.2340, we would have at 1.2320 just twenty unclear pips instead of forty appreciable ones.
3. Adding lots in a losing position
… is sometimes just necessary if a losing position is a result of deviation from mean, i.e., the probability of return to the mean increased. Lots should be added to a posing position, and the further the price goes in a "wrong way", the more lots should be added.
4. Closing positions starting with the best one
This issue has much in common with issue 2. It is better to close profitable positions, not losing ones – the latter ones can become profitable if we don't close them now!
5. Revenge
This feeling does not occur if one does not close losing positions or closes them together with the profitable ones, obtaining a total positive result as it was done in a trading system [4], the test results of which are given at the end of this present article. Besides, only humans can feel revenge. Having created an automated trading system, we will protect ourselves against emotional steps.
6. The most preferable positions
When adding lots to a losing position, the latest "addition" will, of course, be the most preferable. If the price goes on falling (we are now speaking about a long position), we add again. But it is the last "adding" that must give us the total plus – it will be in the very bottom, at the very beginning of a turn.
7. Trading by the principle of 'bought for ever'
Trading by such principle is possible for two reasons. First, as I have already noticed, one should not be in a hurry to close a losing position if even it is very "old" - one should just wait until better time comes (see Clauses 1 and 4). Second, one can earn using swaps – 350% per annum - which is not bad, as well. [3:356]
8. Closing of a profitable strategic position on the first day
Here we repeat Clause 2 – it is never too early to close a profitable position.
9. Closing a position when alerted to open an opposite position
Highly respected Collector in his article [1] does not exclude such a possibility. The author of this present article does not consider this to be an error - it's just an element of a trading system.
10. Doubts
In my opinion, there are no traders without doubts. George Soros said once (rephrasing the Napoleon's well-knwon saying): "One jumps into the market, then figures out what to do next". The idea is ok but the first part - "close all positions". I would rephrase it as follows: Let your PC to manage them and go for a walk.
So, the "Ten Commandments" postulated in [1] or anywhere else by anybody should not be considered as the ultimate truth or a cure-all solution against losses. At present, there is only one way to make fewer mistakes for a beginning or an advanced trader – model his or her own trading systems on his or her PC and check them on historical data – this does not guarantee faultless operations, but arms with accurate computation, not with implicit faith.
Explanation of Trading Strategy ...
more
