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As I said in the Introduction, “The greatest
distance to overcome in each trade is found between the ears.”
Every trader has experienced a trade where maybe you see a few
pips of profit as you trade toward a legitimate profit target,
and suddenly the trade begins to move against you. The logic in
your brain tells you the target is a good one and the entry was
a perfect entry point, so why is this trade going against you?
As the indicators become more and more negative as the loss is
quickly approaching your protective stop, panic begins to settle
in. You reason that the target is good and that all you have to
do is to move the stop a little further. Of course, then the
market moves even faster toward your stop, and your reasoning
power suggests that you should move the stop to an even greater
area of protection, risking even more of the margin. If the
market does turn back toward your original limit, which may take
hours or even days to surrender, most traders are so happy to
see even a small profit that they will escape the trade with
only one to five pips of profit. The problem is the market was
chasing you (the trader) on the wrong side of the trade, instead
of you chasing the market on the profit side.
So get it straight between your ears before you lose your entire
margin. Calculate a stop and stick to it, right or wrong! You
can always get back into the trade and make your money back if a
loss occurs. Failing to get back on the horse quickly is a
mistake that many traders make when they fall off the horse, so
to speak, or make a loss.
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Safety is the primary focus of a professional
trader with the risk- return ratio always in mind. Normally, a
resistance is formed if an upward-trending market is approaching
an extreme, which will bend the market either suddenly or
gradually as a reversal. Of course, if the market is bearish,
then a support will form when the market reverses.
When this happens, a stop is placed just above the resistance
(about five to seven pips above the high) and if bearish, then
the stop would be placed five to seven pips below the new
support.
A reversal entry from an extreme must have other confirmations
of either a traditional or a modern signal to indicate a
confirmation.
Breaching the extreme level means that traditional and
modernistic signals will not
appear to justify a reversal entry. The next off-market rate to
consider viewing a possible entry is located 25 pips beyond an
extreme. If the 25 level is breached, then we will look at the
31st pip beyond the extreme for signals to begin appearing.
Beyond the 31st, 51 pips becomes the next target, and then 101
to 105 pips for the reversal to be considered.
These pip extensions beyond the extremes offer potential areas
that have been historically shown as approximate reversal areas
that will offer traditional or modernistic signal confirmations.
Conclusion: Who cares if you are trading a simple procedure as
long as it helps pay the bills?
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