What is the reason why traders get the direction of the market incorrect in trading

Hi Guys,

I want to know your opinion on as to why traders make incorrect trades ? In other words why does the market direction go different to the one which we made a trade even after doing the TA

Why does one go wrong in technical ?

  • is it because their knowledge of TA was not full ?

  • is it because they made a mistake in TA ?

  • is it that even the best TA would not have helped in a particular scenario

  • is it because of a fundamental factor overriding the TA ?

I am asking because want to know - to what extent does getting TA right make sure the trade goes our way ? and if it dint go that way - does the only mean that the TA was wrong ? Or that the best of TA would be inadequate for this?

Thank you

All of the above, and more.

It’s all a probability function. Nothing’s going to be right 100% of the time.

There are ways of increasing the probability (of having the correct directional bias), but in general, the [I]higher[/I] the probability one manages to achieve with any given method, the [I]fewer[/I] will be the trading opportunities presented by the method.

Overall [B]win-rate[/B] (which depends to a substantial extent on “getting the direction right”) and overall [B]profitability[/B] are two different parameters: it’s easily possible to gain [I][U]more[/U][/I], overall, from having slightly lower win-rates (due to slightly [I][U]less[/U][/I] accuracy of probable directional assessment), simply because of a greater frequency of trading opportunities.

For this and other reasons, nobody should assume or imagine that “predicting overall direction correctly” is the holy grail of trading: trade-management is more important. Like so much else to do with statistics and probability, of course, to many people it’s [I]very[/I] counterintuitive: it would be easy to imagine that because “getting the overall direction right” is a prerequisite to making profit from any [B]individual[/B] trade, that it must [B]collectively[/B] be “the most important trading skill” … but that’s actually [U]far[/U] from the truth.

At its most simplistic level, and purely as a theoretical example, it’s better to win an average of 10 pips an average of 6 times per day (or week, or month, or whatever) than it is to win an average of 20 pips an average of twice per day, etc.

Its all true what lexys says; even when you get the TA absolutely correct, the markets can still do something that was possible but very very unlikely. Obviously its possible to predict all the things the markets might do, but impossible to predict the single thing they definitely will do.

At the risk of being a bit starchy I have to point out right away that traders often take a position when there is actually no direction from the chart anyway or when the direction they prefer is less than 50% probable. Examples of the first situation would be catching a break-out from a range or chart pattern: of the second kind a reversal point in an established trend. Both of these look really dramatic and efficient on a historic price chart and to be fair they can bring dramatic profits - but at the cost of probably being wrong.

But its the way we are unconsciously pre-programmed. e.g. which is the better mountaineer? - the climber who ascends a 15,000ft peak or the one who climbs three 5,000ft peaks? I bet we would all say the first one.

One of the reason of such mistakes is maybe the very short-term timeframe you may use. For example, if you are using 1-hour chart then until you decide to place the trade the trend may change. So, I am suggesting you take the big picture for the tendency from daily charts.

Yep, unless u Scalping. It different story. U execute your trade using lower time frame. I Using 10m. News will effect your predictions

There are many cases when newbie traders do everything right, but they don’t have enough patience to wait for the moment the deal will bring profit. The trader opens, sees that the deal has gone into negative territory, closes it and quickly opens in the other way… and once again the same mistake.

Those people (of whom I’m often one) at least acknowledge quickly that their entry was probably invalid and cut their loss quickly.

They’re losing less, overall, than the ones who hold on, hoping for a reversal, (some of them even moving their stop-loss further from their entry and/or “averaging down” by increasing their position-size while losing :rolleyes: ), typically letting their [I]losses[/I] run instead of their[I] profits[/I].

Ya always happen when I’m just started to trade, scare of this scare of that… Hand shake when price against me…

What dissolves that fear (in my experience, anyway) is knowing that you’re trading a system with a proven edge, statistically significant, well researched, back-tested, forward-tested, etc. etc., and the knowledge that you have an overall positive expectation, so that a trade turning against you is known to be “just one of your inevitable losers encountered along the way to gaining more collectively from your winners than you lose from your losers”.

The key word is “collectively”, I think: you need to have statistical confidence in the [U]collective[/U] outcomes, for the [U]individual[/U] adversities not to be scary.

“Just saying” … :8:

It depends on how and when you trade. If you are a short term trader using a 5min chart, How do know the direction of the trend. Prices can change direction several times in a day on a short term chart. I see people using a 4hr chart to show the direction then trade on a 5 min with that direction. A lot can change in 4hrs. I use a 10min or 15min chart on my day trades for the trend. If price changes direction on those charts I do not trade against it. But generally if you follow the trend on a chart that is 3x or 4x the length of what ever time frame you prefer you will not miss the trend or reversals in price. It just takes a little practice and patience. If it is noon my time then the NY session is winding down, then generally I will not take a buy or sell signal. But if get that same signal at the NY or London open I am more likely to take the trade because I have a higher chance of PA following through because the volume is a lot higher. Any way, just my observations. There a lot of great replies here. Best of luck and great trading.

What determines a trade to be profitable? is what happens after you enter a trade. Because of the complexity of the market with so many orders coming in and out, I would focus of what really matters, which is the SL, Profit targets and position sizing. Which is just not that exotic than how to enter a market, which I believe is irrelevant.

I think “irrelevant” is probably a tiny exaggeration, [B][U]but[/U][/B] …

… you make a good point, and you make it well. There’s a tendency in forums (and perhaps especially in this one) for people to confuse “trading systems” with “entry methods”. I think it arises from an ill-formed assumption that “as long as you enter at the ‘[I]right time[/I]’, everything’s somehow, magically, going to work out ok and all the odds will be on your side for being able to make profits”.

The reality, of course, is very different indeed: trade management and risk management are, for most people, most of the time, more important than when to enter.

All I’m saying is that the edge might not be where most people are looking. Perhaps how traders manage their trades and feel for what you have now, and what you had in the past in a context, is all what makes the difference.
I believe the brain is far more powerful than any computer, and yet we are all drawn to this idea that trading can be quantified.

True fact, basically maximum retail Forex traders notice the status of current trend in the ending stage of it! For the reason that, they rely on only technical indicators instead of fundamental data! But pro traders ride on early stage of every trend and close their trades during confusing sessions of market I mean rangy market! This is way, pro traders are secure but retails traders are not!