What is the reason why traders get the direction of the market incorrect in trading
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  1. #1
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    Oct 2015
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    Default 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

  2. #2
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    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 higher the probability one manages to achieve with any given method, the fewer will be the trading opportunities presented by the method.

    Overall win-rate (which depends to a substantial extent on "getting the direction right") and overall profitability are two different parameters: it's easily possible to gain more, overall, from having slightly lower win-rates (due to slightly less 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 very counterintuitive: it would be easy to imagine that because "getting the overall direction right" is a prerequisite to making profit from any individual trade, that it must collectively be "the most important trading skill" ... but that's actually far 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.

  3. #3
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    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.

  4. #4
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    Feb 2016
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    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.

  5. #5
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    Yep, unless u Scalping. It different story. U execute your trade using lower time frame. I Using 10m. News will effect your predictions

  6. #6
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    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.

  7. #7
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    Quote Originally Posted by Edmund85 View Post
    The trader opens, sees that the deal has gone into negative territory, closes it

    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 ), typically letting their losses run instead of their profits.

  8. #8
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    Quote Originally Posted by Edmund85 View Post
    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.
    Ya always happen when I'm just started to trade, scare of this scare of that... Hand shake when price against me...

  9. #9
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    Quote Originally Posted by Alanlim3 View Post
    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 collective outcomes, for the individual adversities not to be scary.

    "Just saying" ...

  10. #10
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    Apr 2016
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    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.

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