DOING THE ACHIEVABLE
Low odds trades; I thought I’d lead out this year’s first post by identifying a false trading concept that’s pursued by thousands of traders daily to their endless frustration.
That concept is the pursuit of perfection in everyday tasks and at every time level of trading.
This is really unnecessary in the markets if one’s trading goals are profits.
Actually (and surprisingly), the Markets are already perfect at the level of their NET response to buying and selling and determining the give and take of buyers and sellers over time.
However, when seeking to narrow down the figures to pinpoint single events making up that net response, we enter an area of increasing fuzziness as accuracy (price) and location (time) battle with each other at the quantum level.
The pursuit of ‘precision’ and location manifests with traders as searches for precise tops and bottoms in markets with infallible precision before they’ll trade. This can easily become an excuse to not take a risk by not taking a trade because the tops and bottoms calls are generally ‘low odds trades’. Low odds of success that is.
There’s no harm in the search, of course, and, there are marvelous methods that achieve these goals much of the time, but, I’d like to point out that by focusing on the art of perfect prediction, many excellent profitable trades and investments are ignored and passed by unnecessarily .
Take the recent drop in the USD/CAD (US Dollar vs. Canadian Dollar).
The questions leading up to the drop might have been . . .
- How much longer will this uptrend continue?
- How do I tell if the uptrend has ended and reversed?
- Where do I stop and reverse?
- Where do I place my new stops?
- How do I tell if this downtrend has ended and reversed?
- Where do I stop and reverse again?
Applying a method that can easily answer these questions is a direction that’s targeting the profitable ‘middle’ (or more) of a move instead of seeking it’s extreme tops or bottoms (an extremely low probability target) while trying to capture all of a move.
To quote a casino pit boss commenting on why so many left the casino broke:
“If they’d settle for less, they’d leave with more.”
One should realize that it’s very profitable to capture the ‘tiger’s or lion’s share’ of the move.
This is shown on the chart above as the grey rectangle area representing the potential profit available by not attempting to call the absolute top or bottom to this trade. – George