The Main Secret of Short-Term Trading
The secret is the less you trade, the less you earn.
Sad but true. Think of any investment that you have ever made. Were you able to finish a job in one day? And if you were so lucky, how many times did you do this again? Undoubtedly very few times. That’s because the universal rule of speculation is the same as the universal rule of growth.
We need time to increase profits.
Successful Forex tradersknow that a one-minute market can move forward a little, in 5 minutes it will move a bit further, and in 60 minutes still more, and who knows how far it will go in one day or in one week. Loosing traders feel like trading only within short periods of time, which automatically narrows their potential profit.
By definition they intentionally limit their profits and go along with unlimited losses. No wonder that so many come up with poor results in short-term trading. They have locked themselves into a hopeless situation, thinking that it is possible to make money during the day just by catching market ups and downs. And this theory seems to be rational, because when you trade within one day and don’t ever leave positions open for a night, you simply don’t rely on news events and major changes, and therefore narrow your risks. And this is incorrect for two reasons.
First of all, your risk is under your control. The only control you have in that business is the control over stop-loss points – the point where positions close. Yes, there is a probability that the next morning market will open with a gap that exceeds your stop (slip past your stop) even though it is a very rare case, but even then you can limit your losses, have stop-loss points and go off of losing deals. Losers stick to losses but not winners.
As soon as you set positions with stop-loss points, you can lose a fixed amount of money. Without any reference to the time your position opens, since your stop-loss point limits your risk. Your risk is the same whether you buy at the all time high point of market or at the all time low point.
Refusing to set positions overnight limits the amount of time that brings investment growth. Sometimes, although the market may open against us, we are still in the right direction, as the market should open in favor of us in most cases.
And what’s more important, when you end trading at the end of the day, or worse at some made-up moment, let’s say, 5 – or 10-minute intervals, you radically narrow your profit potential. Remember I mentioned a big difference between winners and losers, and that losers stuck to their losses? Well another distinction is that winners hold their winning positions, while losers go off the market way too soon. As for losers, they don’t wait for the winning positions: they are so happy to make any profit that they go off the market way too soon (mostly during the day).
You’ll never make big money, until you learn how to stick to winning positions. And the longer you stick to them, the bigger your potential profit can be. When farmers sow fields, they don’t dig the plants up every few minutes to see how they are growing. They let those plants grow and sprout. Traders can learn from this natural process. Trader success is not any different from successful farming. To cultivate successful deals, traders need time as well.