With Crude taking a dive this week (our MarketClub Trade Triangles getting short at the PERFECT price) I wanted to bring in Jeremy Ascher from ChartWhiz.com to bring a little insight into what he's seeing in the energy markets as we've gotten a ton of emails regarding pulling profits and controlling losses. Please enjoy the post...and take a look at our most recent signals for Crude Oil (CL.V08) if you're a MarketClub member.
I’ve been analyzing and trading the energy markets for more than 10 years and I continue to see beginner traders make the mistakes over and over again. I know this because I made the same mistakes when I was a rookie trader. It goes something like this…you start the day with a good trade and lock in some nice profits. Then you make another and your having a pretty decent day, one in which you could easily call it a day. Let’s say for example you’re up $800 on the day. But then the greed kicks in and you want more. Ok, one more trade, let me hit that $1000 mark. Now you place a losing trade and you’re up only $600. Now you think to yourself “I should have just closed the books. Ok, let me try to make that $200 back and call it a day”. You lose again, up only $350 now. Now you’ve turned a triple into a single. Now you’re angry. That’s it, it’s all or nothing. I have $350 to risk and I’m done. This is where it gets ugly, usually turning an $800 winning day into an $800 loser, a $1600 swing.
Sound familiar? You bet it does.
Why does this happen? The answer is simple-you are not master of your domain. In other words it’s a lack of discipline. Without discipline it will be very difficult to become a successful trader. So I’ve come up with a few simple “post it” notes that should help you overcome this hurdle. I have these notes posted to my monitor in big letters to keep a constant reminder. Here they are:
1. Trade the numbers, not opinion. Before you trade you should always do your homework. I analyze the charts to derive support and resistance numbers. These are the only areas that I am willing to place trades. Anything else to me is gambling. If you have support you are buying against, you trade that number until the market tells you otherwise.
2. Patience. It is extremely important to have patience when trading. Use your support and resistance as guide lines. Do not chase the market and force trades; let the market come to you.
3. No Emotion. It is virtually impossible to not have any emotion when trading, but it can be reduced drastically. To do this, trade with a systematic approach. Determine a comfortable risk threshold to use on every trade. If you’re wrong and get stopped out, wait for the next trade with the same risk parameters. Trading a system day in and day out will help keep you off the emotional rollercoaster that so many of us experience.
These may sound too simple and basic to work, but sometimes it’s the simple things that work best. And believe me, these do. After all, not trading your numbers will lead to impatience which will lead to emotional trading. And that my friends, is a recipe for disaster. So get out your sticky notes, write these down, and stick them on your monitor and become master of your domain today.