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Taking Profits From The Market
When you are new to trading, if someone talks about maximizing profits, you might feel like snarling at them and say, that is the least of my worries, first let me make profits.
The reason behind this is because no one can know what is going to happen the next minute. Too many factors influence the market. Anything can cause drastic changes and that is something we don’t quite readily accept. Majority of people in the world are used to having a routine in life. From the bus system, trains to the schools – all work on a schedule. Market is far from it. Anyone can see the pattern and come with a reason after a move has happened in the market. However, prior to that, even the smartest of the smartest cannot accurately predict what can happen.
“The question of when is a function of your ability to read the market and pick the most likely spots for it to stop. In the absence of an ability to do this objectively, the best course of action from a psychological perspective is to divide your position into thirds (or quarters), and scale out the position as the market moves in your favor.”– Mark Douglas in the book ‘Trading In The Zone’.
So what do we do? Stop predicting. Come up with plans, if scenario one happens, you should decide what is your action, if scenario two happens what is your action2. If you feel your action is correct test to see how your results are in the real live trading. How do you test ? DEMO account – where the prices are live, but the money is ‘play money’.
There are lots of technical plans one can have to sustain profits, these can easily be practiced with a demo trade and then slowly with micro positions and then with mini and then standard. If you are testing, you should know for each strategy what your probability of winning is and what is your winning ratio. Also you should take into consideration all the factors you noticed.
Another major factor is News. Whatever technical indicators and chart patters we look at, major news changes everything. Some traders using solely technical analysis, vow that the price reflects the news, so advice not to see the news. News affects your mind. It gives you a belief that the market will go one way and thus make you go against your initial plan. A strong belief that the market will go in one way will make people risk more than they should because they will feel that it is money lying on the road.
News Series To Look Out For
1. Non- Farm Payroll First Friday of every month 8.30 am EST
2. FOMC Release time varies, meet 8 times a year
3. Retail Sales Mid month, around 13th, 8.30 am EST
4. Durable Goods Twice a month, 8.30 am EST
5. Gross Domestic Product Quarterly on the 25th 8.30 am EST
6. Producer Price Index 3rd Week of the month, 10 am EST
7. Consumer Price Index Mid month, 8.30 am EST
8. Consumer Confidence Last Tues of the month, 10 am EST
The above come out at fixed timing, so it should not take you by surprise. If you are in a trade, you should expect higher than usual volatility, change in direction and bigger moves. There are no rules, sometimes nothing happens. Usually new traders are advised not to be in a trade during these times. Many feel like beating themselves up because they missed a big move. But these are very high risk also.
Other things to look out for are the announcement about major currencies, like USD, EURO, GBP, JPY, CAD and AUD. Interest rate changes, easing, and other monetary changes.
All the above affect currencies, gold, silver, oil, indices more than they affect individual stocks. When trading individual stocks, company major news and earnings report are the main movers. Personally I have made the most money in single trades during earnings report and also lost most money during these announcements. Now I prefer to keep away during the earnings reports announcement, although it is very tempting.
Nothing can improve your odds of winning more than technical analysis. A good charting system provides most common technical analysis indicators. Most brokers provide a good charting program. This is one of the key factors to look for in a broker.
Everyone knows that fundamental factors move the price, but the financial institutions get the news faster than the public and they can take faster action and their volume is also very big. But the time the general public get the news, the price move has already taken, and worse – some are taking out their profits. So the price moves in the opposite direction, a pullback, due to profit taking. That is one of the main reasons why; sometimes even when the news indicates a certain direction in the market, the actual is the opposite. The market has already digested the news. This can be seen in higher than usual volume during big moves.
Why is technical analysis more practiced by the public than technical analysis? It can tell a concise picture of who is controlling the market, buyers or sellers. Those who practice technical analysis do not act by opinion; they act on what they see. Instead of predicting the market, you can just follow it.
You can miss big, sudden moves. But when the market is trending, many can make good consistent profits.
Things To Consider
Here are some other factors to consider when deciding if the odds of a particular trade is for you and would bring you profits?
1. How much time do you plan to dedicate to trading, and when?
2. How much do you plan to invest?
3. How much do you plan to risk in each trade?
4. How much to you plan to risk in all the trades at the same time?
5. What market are you familiar with or what market do you want to trade?
6. How much money do you want to make?
Plan carefully and don’t just predict blindly and you certainly would see more profitable trades coming your way.