Trading Pal Blog

There are often times when a trading instrument doesn't display any clear trend - either up or down. That shouldn't prevent you from pulling a profit out of the market if you have the right strategy.

A market is either trending or ranging; usually showing a clear move upwards or downwards a third of the time. This means most often it is bouncing between two limits. This is a safe trading opportunity.

Nobody is smart enough to pick the tops and bottoms of the market so you should not try either. Using stop orders you can enter the market only if the stock (currency, commodity, whatever you are trading) displays the expected behaviour.

As soon as you are in the market you can trigger another stop pending order to protect your newly opened position. That way you are not glued all day to the screen. You may check 3 times a day the situation with a smartphone.

A third limit order is placed in the market to collect your profit near the outer range of the trading channel. Simple in theory.

In practice several things can go wrong. How close your stop order is from your entry point is a matter of how much risk you are prepared to tolerate before you call it quits. Funnily enough the more tight fisted you are the more you stand to lose because the market noise is sure to hit a stop order placed to close - only to resume the previous move moments later...

Too much greed is also a downfall. Many have seen a good profit escape their grasp because they were not content with what was on offer on the table and wanted more.

Better many small profitable trades than no gain at all. If brokers commissions are an issue for you then shop around and find a setup that's fair to you.

Most importantly you need to keep a log of your trades and figure out your trading averages. How many losses in a row did you encounter? How many gains did you have in succession?

Remember also that the markets do evolve over time. You might have been fortunate to identify a profitable trading pattern. The market does not owe you anything and is free to branch out into a completely new behaviour without warning.

If that happens don't be stubborn. Don't jeopardize your previous gains. Go and smell the roses and study other more profitable instruments to devise a new strategy.

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