Part of the battle with learning to trade is realising that almost everything about it is counter-intuitive!
The market has a strange habit of behaving in a way that’s contrary to everything you have learnt in life.
Let me explain…
Work Less To Earn More
In most careers, hard work gets rewarded. The more you do, the more likely you are to get that pay rise or career progression. A good employee is always busy being productive.
The complete opposite is true of trading!
Traders who have come from a regular work environment are not used to sitting and doing nothing. They find it difficult to be idle while waiting for a trade, especially if their strategy requires doing nothing for hours or even days.
This translates into a feeling of needing to take a trade and as soon as they switch on their monitors, they are likely to take one bad setup after another.
The solution is patience and learning not to treat trading like a job.
Price Action Likes To Fool Uninitiated Traders
It’s funny, but even price action on a chart will act in ways counter to real life expectations.
Let’s say you’re standing on a dark country road and a car is zooming towards you at high speed. Chances are you’re going to get out of the way very quickly!
Now let’s translate that same feeling to a chart.
Below is a section of the EURUSD 1 hour chart where the market is dumping. I’ve deliberately covered what happens next.
Before scrolling down, I want you to be honest with yourself here. What would you have done if you were:
- In a long trade?
- Waiting on the sidelines for a trade?
OK, let’s see what happened next…
It turns out that scary red candle was the best opportunity to buy the market, at a good confluence of a demand zone and a trendline.
It’s no accident this situation happens again and again. Mr Market uses your expectations of what should happen in any other real life situation against you. That is why it’s so important to think counter-intuitively.
Bad Trades Are Over In a Flash, Good Trades Take Forever
Another way the market will get it’s way with you is through impatience.
Have you ever noticed your bad trades are stopped out really quickly, but your good trades seem to take forever?
Again, the market is counter-intuitive in that winners often take much longer to play out. This will not only test your patience, but give you plenty opportunities to watch inconsequential price action that may cause you to close your trade early.
Notice on the Gold 1 hour chart below, the market took out the stops of early longs (below the red line) very quickly – it was all over in an hour.
However, for traders who got their timing right, the climb took infinitely longer.
This is because real directional moves are punctuated by slow channeled pullbacks and support/resistance retests.
… in other words, trading to a target takes a lot longer than getting stopped out!
Everything Is NOT OK When The Market Grinds Slowly.
You learnt that a fast scary move is often a great place to reverse the market and get into a trade.
Well, conversely, a slow grinding move can be the worst time to take a trade (or stay in a trade).
When the market slowly grinds in a small range, it is advertising for traders to get involved. However, these “adverts” are not always in your best interest.
For example, look at this Ethereum 1 hour chart:
Traders would have sold at resistance and that is a perfectly valid trade. But what happened next was a warning sign to get out…
The market grinded away into a small triangle. That rings alarm bells for traders who understand these markets and is a signal to get out of short positions.
Less experienced traders may have continued holding a short trade or even entered new short trades, mistakenly believing that the market lingering here was “confirmation” that their short bias was correct.
Again, the obvious action (holding at resistance) is wrong and the non-intuitive action (exit shorts or buy a triangle breakout) is right.
I hope you enjoyed this article and found it useful. If you did, a like and retweet on social media would be much appreciated. Thank you!
Take Your Trading To The Next Level
We’ve only just skimmed the surface when it comes to price action and trading psychology.
If you would like to learn more about my trading strategies including determining bias and flow, advanced supply & demand concepts, how the smart money manipulates the market and how to apply these concepts to Forex, Stock Indices, Commodities and Crypto Currencies, then find out more about my course offerings by clicking the image below.