Trading Variables

Trading Variables

With trading it is not as simple as adding 1+2 to get the result of 3. We wish it was that easy but there are so many variables with trading and it is our job as traders to adapt to situations that are changing minute by minute and pattern to pattern. 1+2 does equal 3 , but someone else might be looking at the equation as 3-2 = 1! Everyone has their own opinions and look at the market differently that’s how we get the moves to trade in the market.

Some traders start out trading with the mindset of I will follow the rules and therefore I will make money. This sounds reasonable but it doesn’t quiet work in those steps. Yes, there are rules to follow but inside those rules are variables and the variables are what makes or breaks traders.

Here is a brief overview of basic and variables:

Trading basics:

*Patterns

*Impulse and correction

*Contraction and expansion

*Time Frames

*Emotions (good and bad)

*Mindset (scalping or position day trading)

Trading Variables:

*Multiple Time Frame patterns (Waves within waves)

*Impulse (the market is strong going up or down but there are minor waves within the larger wave making it hard to hold the trade and clouding my reasoning we are in a impulse)

*Correction (Is this going to be a simple ABC or is it a complex ABCDE)

*Contraction (market is getting into smaller range on the small time frames because the bigger time frame is at a target or a decision level)

*Expansion (The market is getting ready to break the contraction and go into a expansion, but it will fake you out multiple times on the small time frame)

*Multiple Time Frames (why use certain time frames over others) * Smaller chart is going up, but it is going up to bigger resistance*

*Emotions (Your emotions are very high on winning trades and very low on losing trades clouding your thought process for the next trade).

*Mindset (Some days you feel like scalping and some you feel like you can hold the trade longer)

These are just some of the basic things that we can look at with our trading. The variables are what take time to learn and the only way to learn them is to first know the basics. Without the basics we would not know the variables to the basics. Are you following me here?

It takes time to learn the basics, much more time than people will acknowledge or accept. Everyone wants results now and we want to know everything there is to know about every aspect of trading, but this is not a realistic approach in our opinion. You must see it for yourself, this way you can see the pros and cons to your thoughts. No matter what your charts say you will still have thoughts, some good and some bad. It is learning over time to know when a thought is bad and skipping those thoughts and go on to the next question in your mind. You are weeding out the bad and replacing it with the good.

Everyone is different and everyone has different thoughts at certain times when trading and that is what makes trading good meaning; the buying and selling is opinions and without those opinions we would not have a market to trade. Taking it one step further we are actually trading everyone’s emotions all day long. There are quick irrational emotions and there are bigger more thought out emotions (the bigger and smaller patterns).

Maybe the entry method is wrong for your mindset?

If you can’t hold through a correction then don’t attempt to do that. Wait for the correction to be over and then enter the trade. If you wait for the correction to be over now you will feel like you are getting in the trade too late. There is always a con with every pro with the markets. The point is if you are trying to enter with one mindset and then hold the trade with another it will not work.

Are you scared to enter the trade?

If the 3 and 10 minute are both green and the scalper chart is going up everyone can see that but if you are in a constant state of fear you will be paralyzed with the markets because the fear of losing is too great. Usually the end result in this emotion is you will enter the trade too late right at the top of a minor wave and then will get stopped on a minor correction. You should be cautious with your trading not scared!

Being a scared trader means you are trading real money too soon and this will build bad habits. I know everyone says trading is easy and Blah, Blah, Blah. It’s not! And facing that fact will save you money because you will not be in a wrong mindset.

There is a fine line with being confident and cocky with trading. It is that fine line within yourself that you need to find and stay with no matter how big the range of the day might be. If we are too cocky that means we might not be looking at both sides of the story meaning; If someone is dead set that the market is going up they might only be looking at a small time frame. Sure, we have our outlook but it is having two outlooks and then gaining odds on which one will play out. Again, sometimes the variables might be something out of our control like news.

In trading when people say “if I only would have done the opposite I would have made money”

Trading with the trend in the market will feel wrong. Why is this? The way humans think is to react to something and will result in you trading against the trend meaning; wait for the market to go up 10 points and then short it. It’s that reaction emotion that kills most traders, and the fact that no one wants to wait they want to be in now!

Because we want to trade with the trend we must acknowledge these facts and accept them not fight them. When it feels wrong it is probably right with the markets.

When wave 1 is made it is like pulling back the bow and arrow. After wave 1 correction this is when you are holding the bow and arrow all the way back. After the correction and we get a green bar it is like you are releasing the bow and arrow going forward to sling shot forward. If you go long too soon you will have to sit through time and price as the bow and arrow goes back further until it releases.

Have you ever used a bow and arrow? You know what happens if you don’t release the arrow when it is pulled back? The arrow will just flop on the ground and this is the same result if you enter the trade too late. You are entering with no thrust behind you.

Just as the arrow will fly through the air then ultimately angle down then hit the ground. We do not want to jump on the arrow as it is losing steam and heading for the ground. So when the arrow is losing steam why would we jump on in hopes the arrow goes a few more feet? We wouldn’t and this is the same as jumping on a scalp long right at the top of the wave.

Think about it with a bow and arrow there is variables on how far the arrow will go. There could be minor wind gusts or major wind gusts right? But if you know the arrow is going up why would you go against that direction?

Once the arrow is released you really don’t have any control over the variables. Yes, you might think the wind is minor but once it is released the wind could pick up but that doesn’t change the fact the arrow will go in the direction you point it. Our patterns and indicators help us get the direction before we release the arrow towards the target. Sometimes it will be a bull’s eye and sometimes the variables will be too great and it will not make it to the target. Or we pull to hard back on the bow and it snaps! (This is getting stopped on the trade as it takes out the last low)

Conclusion:

If you are getting hung up on the variables you are not giving the trade a chance. Once in a trade, we cannot control the variables but we can manage them with moving stops. If the trade is in a major wave then a minor stop has more odds of getting stopped. If we enter off a minor wave then using a major stop is too much risk. It is you understanding this and trading accordingly to the conditions.

If you’re overall outlook is right but you are getting stopped on minor waves switch to something that is less dollars per point. Learn to trade the major waves and in doing that you will also have real time experience in watching the minor waves because you will be sitting through them.

In our opinion most traders are trying to break down the minor wave on the smallest chart and this is adding too much confusion into learning the bigger patterns. Once you learn the bigger patterns the minor waves will just be something that is normal within the chart not something that consumes your overall thinking process!

Happy Trading,

www.eMiniSchool.com