One of the most perplexing things about Day trading is how a given set of rules, strategies or systems will perform great on one day, yet fail miserably the next . Traders are constantly frustrated to discover that their magic indicator or Holy Grail system fails to deliver consistent results. The big problem they have is the inability to properly identify the prevailing market conditions. Many traders want to constantly participate in the market and thats a huge mistake. This is why they will make profits, only to give them back later in a session. How could you potentially as a trader avoid this?
Obviously one of the worst times to trade is in a choppy market. An experienced trader can glance at a chart and see many clues as to the real time market conditions. Markets generally tend to make a considerable move and then shift into a period of consolidation. During this consolidation phase, the choppy conditions can occur. This is when price movement loses directional volatility. There are different strategies for detecting these choppy periods. One is to look to see if the price moves have shown strong follow through. For example, the price has shown some 20 to 30 tick moves in a fairly straight line as opposed to a twisting, zigzag up and down pattern.
You must know the optimum time to trade your given instrument. For example, if youre a trader of stock indexes such as the S&P or the Russell you want to trade during times of strong volume. That volume is what propels price to its target quickly. The opening hour from 9:30 am to 10:30 am est. is one of the best times to trade these instruments. After that time, the market can often tend to get choppy. The last hour between 3pm est. and 4 pm est. is also a good time to find some strong moves. So again, whatever you trade, you will probably find your best opportunities in the opening and closing hours of that market.
Knowing the days economic news event calendar is of the utmost importance as well. For example, if there is a major news event at 10 am, the market may lack direction until that news is released. The first one to three minutes after the news is usually not a good time to trade. The initial reaction may send the price soaring up in the first few seconds only to inexplicably reverse violently a few moments later. Staying out of the market for at least the first five minutes after the news is often a good plan. By then, the true response to the news is often revealed. Sometimes the event will be an important economic speech that lasts for a prolonged period of time. During a speech, the reactions can vary immensely. Perhaps the market likes some aspect early in the speech, but a few minutes later the speaker may utter something which causes a complete opposite effect. This again can trigger some very erratic moves which are extremely difficult to trade.
Along with assessing the current market conditions, a trader must also take inventory of his personal condition as well. If you are overly fatigued, anxious, distracted or agitated, then you should not trade. There is a good chance that your performance will suffer.
To sum it up, to be a long term trader, it is just as important to know when not to trade as it is to know when to pull the trigger. If the market is showing less than optimal conditions or the trader is mentally and physically impaired in some way, the best choice is to stay on the sidelines. Always remember that cash is also a position.
www.optimusfutures.com
Obviously one of the worst times to trade is in a choppy market. An experienced trader can glance at a chart and see many clues as to the real time market conditions. Markets generally tend to make a considerable move and then shift into a period of consolidation. During this consolidation phase, the choppy conditions can occur. This is when price movement loses directional volatility. There are different strategies for detecting these choppy periods. One is to look to see if the price moves have shown strong follow through. For example, the price has shown some 20 to 30 tick moves in a fairly straight line as opposed to a twisting, zigzag up and down pattern.
You must know the optimum time to trade your given instrument. For example, if youre a trader of stock indexes such as the S&P or the Russell you want to trade during times of strong volume. That volume is what propels price to its target quickly. The opening hour from 9:30 am to 10:30 am est. is one of the best times to trade these instruments. After that time, the market can often tend to get choppy. The last hour between 3pm est. and 4 pm est. is also a good time to find some strong moves. So again, whatever you trade, you will probably find your best opportunities in the opening and closing hours of that market.
Knowing the days economic news event calendar is of the utmost importance as well. For example, if there is a major news event at 10 am, the market may lack direction until that news is released. The first one to three minutes after the news is usually not a good time to trade. The initial reaction may send the price soaring up in the first few seconds only to inexplicably reverse violently a few moments later. Staying out of the market for at least the first five minutes after the news is often a good plan. By then, the true response to the news is often revealed. Sometimes the event will be an important economic speech that lasts for a prolonged period of time. During a speech, the reactions can vary immensely. Perhaps the market likes some aspect early in the speech, but a few minutes later the speaker may utter something which causes a complete opposite effect. This again can trigger some very erratic moves which are extremely difficult to trade.
Along with assessing the current market conditions, a trader must also take inventory of his personal condition as well. If you are overly fatigued, anxious, distracted or agitated, then you should not trade. There is a good chance that your performance will suffer.
To sum it up, to be a long term trader, it is just as important to know when not to trade as it is to know when to pull the trigger. If the market is showing less than optimal conditions or the trader is mentally and physically impaired in some way, the best choice is to stay on the sidelines. Always remember that cash is also a position.
www.optimusfutures.com
