How to be profitable in trading
From time to time every trader is asking himself this question. Probably he goes deeper in his analysis of this. “If I have done my analysis good and eventually trade went into the direction of my entries why I am getting more losers then winners? Why I am not profitable in trading?”
Most of the traders should be aware of the fact that doing analysis and trading is not the same. Trading is completely different. Being profitable in trading requires much more than a perfect analysis. You can be the best analyst with the bad trading results. Why? Trading includes proper positioning with the flows of the markets, good timing of the entry and exit, proper risk management (awareness of the connection between your trading capital and the trades) and psychology (discipline, patience, and mental strength).
A perfect analysis will not give you the timing of the entry and exit, it will give you rather a zone, and it will determine in which direction you will trade, meaning will you take long or short trade of the selected instrument. The timing of the entry or exit depends on the dynamic price action in the zone that has been targeted by your analysis. As with the timing of the trade, your analysis will not tell you what trading size should be taken, and also your stop loss level, because stop loss level is much more affected by the trading size then your analysis. Stop-loss level could be above or below your zone but it really depends on your risk management preferences, your equity, and your drawdown. When you take all of this into account, you could be in a loss by determining properly the right direction with your analysis, because of the incorrect timing of your entry, bad stop-loss, which could be in the zone determined by your analysis but not good from a trading perspective. Most of the time, at least by our experience from our mentoring and funded trader program, after the stop has been taken price reversed in the desired direction, that said it would be a profitable trade. Then the losses accumulate and the win ratio is decreasing, but more than that, the trader loses confidence, self-esteem, his analysis is good but trading is not. It should be clear that analysis and trading are completely different.
Even when you do all the best your trading could not be profitable. But the trader/analyst should come to this conclusion and adjust his mindset not just to analyzing the market but to developing trading skills, using all the acquired analytical pieces of information to implement it properly into trading and choosing the best timing, for entry/exit as well the stop loss.
For example, let us assume that the trader took short on Gold when the price dropped below 1500 level with the stop loss at 1512 to target 1450. By all means from an analysis perspective, this was a good entry.
In just three days trader would be stopped out. Eventually, there is a great probability that his trade would go into his direction again if the Gold would be rejected by wedge high 1530. So the trader would end up with a losing trade. What happened? The analysis was good, but the stop loss for this trade was to close, instead of 1512 stop loss should have been at 1535 which is above the falling wedge line.
In our hypothetical example, the analysis was good even the timing of the entry was proper, not perfect but it could give a result. Close stop-loss ruined the trade which could still be in the game. If it would be stopped out at 1535 the trader could easily switch the side from short trade entry to long, also a good opportunity because it would suggest that the falling wedge was broken for an upside continuation.
Traders should accept the fact that trading is dynamic, analysis is static, support and resistance zones are dynamic, so as our views of the risks and stop-loss placements should be. Trades need all going trade management from the point of the entry to the point of the trade close, which includes dynamic adjustment of the stop loss level, take profit levels and trade sizes. Also, you should be ready to change the side of your trade quickly, that means to change the point of your previous analysis.
We have used the combination of the top-down trading analysis to get these key levels explained in the charts.
(click on the chart to enlarge it)
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