Trade Ideas Blog

A Thousand Paper Cuts

Dec 8, 2009

Winning is not easy. It is not easy in professional sports and it certainly is not easy as a professional or active trader. When you hear people telling you that they have no losing trades this year, you should be careful.

In trading winning is process of managing losses. When we use our software to help us trade, we know that just because we see all of these great set ups, does not necessarily mean that we are going to make money.

In order to make money a trader has to learn how to lose. You have to learn how to lose and how to lose well. The problem with losing well is that it is very difficult. You can lose poorly in obvious ways like getting into a trade long or short and then just letting the trade go against you. That is the easy way to lose poorly, but the scientific way to lose poorly and something that we see happen to smart people all the time is the dreaded death by a thousand paper cuts.

Notice the wide angle wedges on the daily chart of the SPY. What that mean is that any technical trader that is trading this is easily prone to getting stopped out in either direction. It is a very tricky type of trading environment. The best advice to avoid the dreaded death by a thousand paper cuts is to divide your positions into 3’s if you are trading 300 shares separate it out into 3 lots of 100 and slowly scale in. Often time you have to do the opposite of what is termed correct technical trading.

Using the OddsMaker we know that right now the strategy is to fade the high volume spikes, especially on the downside. There is good money to be made in either direction, just don’t put all of your eggs in one basket let the market show you the path of least resistance!