April 10, 2008
Buy Into Motion Equals Chasing a Trade
When a trader sees the market take off, then decides to place a trade just because the market moved a little bit in one direction or another he/she is chasing a trade and thus buying into motion. Never buy into motion. The reason is because you see the motion, get excited, enter a position, and then try to decide what the plan for the trade should be. You should already have a plan before you open a position so that you know why you entered the trade, how you will exit it, and what the long term direction of the market is for the pair you are going to enter.
I really see this a lot when traders are trading the news. They see the market move by leaps and bounds, they jump in the market then the market reverses on them. They get out at a loss, enter a trade going the other direction to find the market is now going in the original direction. They get out at a loss once again. They once again get back into the market going the other direction to see the market move against them again. When this happens they have experienced ‘being whip sawed’.
If you have your trading plan in effect before you trade then you will save money and have little or no stress. Use signals to enter the market and be able to explain in your trading journal why you entered the trade.
Topics: Disciplined Trader, Trading Tips
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