If you want to improve your price action trading results, then it is imperative that you learn the number one day trading mistake that most traders almost always seem to make. By learning this crucial trading mistake, you can avoid it and instantly improve your trading results. What is the number one day trading mistake you ask? The number one trading mistake that day traders make is taking counter trend trades. A counter trend trade is simply a trade in the opposite direction of the prevailing trend. Assume that prices are making higher highs and higher lows, and trending in an upward direction. Our with trend trading rules tell us to only buy, as selling in an upward prevailing trend is counter trend trading. The odds of a winning trade are much higher if you only buy when the market is trending upward, or only sell if the market is trending downward.
While there are many reasons that traders choose to counter trend trade, the number one reason is because of physiological pressures, which is what makes trading in general so difficult. Your mind plays tricks on you, and it will cause you to perceive a correcting trend as a reversal pattern, when in reality it is nothing more than a temporary correction prior to the trend reestablishing itself. What happens in most cases is that a with trend entry will look very poor, and it will trick most inexperienced traders into thinking that it is a top or bottom forming, rather than a simple correction. The correction will look look like a very strong reversal setting up, and this leads traders to want to try and enter counter trend in order to enter at the the top or bottom of a trend, only to see the trend start up again soon after they enter their counter trend trade.
It is our opinion that picking tops and bottoms is almost impossible unless you know and understand how to read a price chart, which most do not. Believe it or not, we can show you a rather simple way to determine almost exactly when the market will reverse with ease. Even though we can show this strategy to traders, many times they will still turn around and get tricked or fooled into entering a counter trend trade. This is where and why discipline is so important to becoming a profitable trader. You not only have to learn how to trade, but you must also have the discipline to put that trading knowledge into practice without ever breaking the rules, and this is very difficult to do, even for someone that might describe themselves as being a very disciplined person.
Below is a small excerpt from an article we found at http://tradingconceptsinc.com on counter trend trading. This writer/trader agrees with us in that he also believes that counter trend trading is the wrong way to trade and he suggests that traders try and keep their trades to 90% with-trend trades. We would take this one step further though and suggest that traders NEVER take a counter trend trade, at least not until they are extremely well versed in the ability to read a price chart, and even then, it’s still a much higher risk trade entry. Below is what the article had to say.
Many traders, believe it or not, aren’t aware of what I am about to tell you. Most beginner traders try to catch tops and bottoms in the market, not even trying to trade the (intra-day) trends. I, like many other traders first starting attempted to do the same thing. I know this from not only my own personal experiences, but by teaching and talking to tens of thousands of traders that they tend to do the same thing. Most traders feel that by trying to catch the top or bottom is really where the real money is. I on the other hand disagree completely. Catching just a little piece of a trend (and sometimes larger than a little piece) adds up, not to mention easier (higher percentages) to do than trying to catch a top or bottom in the market. So, I decided to write a quick and short article on Trend Trading vs. Counter-Trend Trading. I know this will give you more insight into both of these types of trades.
Let me first start out by saying that 90% of all your trades should be those trading with the TREND. The other 10% could potentially constitute COUNTER TREND (CT) trades. I would highly suggest concentrating more on the Trend trades as opposed to trying to pick tops and bottoms (CT trades). By not only teaching, but by speaking with students, especially beginners, I find that most traders just try to pick tops and bottoms as opposed to trying to enter the market with the Trend. I will go as far as to say you probably will not make any money by trying to pick tops and bottoms when you first start off trading. Counter-Trend (CT) trading takes a lot more experience. Believe me when I say that you will not only find trading less stressful, but much more rewarding and profitable if you simply stick to trading with the trends. Look to make the small consistent profits with the trends, and of course you will occasionally catch the bigger move. You can read the rest of the original article here.
While we hinted that we could show you an easy way to learn how to spot a trend reversal, we can also show you how to determine when it “might” be OK to take a counter trend trade, although this will always be classified to us as an advanced trade that only the most experienced and profitable traders should even consider taking. The other 90% of traders should simply avoid counter trend trading altogether and stick solely to with trend entries as we have discussed in this article. By sticking to with-trend trades, you will quickly put the odds of a winning entry squarely in your favor. A big problem that tends to happen to traders is that they enter with the trend at the extremes, rather than entering the trend during a correction. By entering at the extremes, the trader is going to enter with the trend just as that market is starting a correction, so the trader’s entry direction is correct, but their timing is off.
Because they are entering early, they have to watch the trade go against them for a while, and just as they realize their mistake and start to become nervous that they are on the wrong side of the trade, they throw in the towel. However, that is when the market will suddenly reverse and continue trending again. Rather than exit when they think they are wrong, many traders will reverse their losing with trend entry and enter into a counter trend trade, only to watch the trend start up again. This leads to being whipsawed in their trading when they were originally following the rules and entering with the trend as taught. Don’t trade blindly without the ability to read a price chart, and don’t make these common mistakes, but rather learn the number one day trading mistake, and avoid counter trend trading altogether! If you would like to learn how we determine when a trend is ending or over, along with all of the other price action rules that will help you to learn how to read a price chart with ease, then you can find out more at https://priceactiontradingsystem.com/pats-price-action-trading-manual.