The 5 most annoying things markets do to us

The sound of fingernails over a blackboard is nothing compared to a severe account drawdown … or a margin call … or a market stuck in sideways hell …

Here’s my top five reasons I hate trading. I’m sure you can add some more for me (just add your comments at the bottom of the page) …

1. Stopping us out by a couple of points before turning around

It’s hard to keep this one in perspective, and my hate of this scenario has lead me to discover the joys of hedged trading strategies, which means that some good has come of it!

But if you’re still relying on the dreaded stop level to keep you out of trouble … you’ll know how frustrating this can be. However, perhaps these words of comfort will help to put the problem into perspective …

If you had a smoke detector that never went off, even when you’d set fire to the dinner – you may start to worry that it isn’t doing its job. But if you have one that screams at you every time you make a piece of toast – you’ll probably end up ripping its batteries out.

Stop levels are a bit like smoke detectors – if they’re hit too much, it drives us crazy. But if they are never hit – we should be worried too.

2. Sideways markets

For many years, as a trader, I lived in abject terror of sideways markets. With markets that were headed nowhere … how was I supposed to pick up profits, and ride the trends I’d been taught were the key to my success?

Trading a strongly trending market can be a bit like doing up houses to sell in a buoyant housing market. It can feel like you can’t lose! But sideways markets make us work hard for our profits.

And prices that dither about directionless, lead traders to do something that can be very dangerous …

… in search of smaller and smaller trends, we switch down into shorter timeframes. And shorter timeframes are renowned for being harder to play, less profitable, and needing lightening reflexes!

But there’s something that sideways markets can give the trader, that strong trends often lack … lots of historical support and resistance levels.

When markets are forging up or down, breaking new ground (or at prices they haven’t touched in a long time), it can be hard to judge where consolidations and swings will happen.

But with a sideways market, we’ve oodles of data on the left of our charts about price levels the market loves … the ones it hates to touch … and the ones it’s likely to forge straight through.

3. Seeing a trade get very close to a profit target, only for the market to turn around, still not taking any action to exit and then finally closing for a loss.

Just as in number 1 we worried that our stop level was too close – now we’re worrying that our profit target was too far away.

Was I being too greedy? I should have snapped up that profit while it was there.

The way to judge this one is by looking at our long-term results. How does your success rate compare to your risk-reward ratio?

By this, I mean, do you enjoy big profits from winners, which are then chipped away by a long stream of losers that follow. Or are you picking up a good percentage of winners, but still struggling to make enough to cover your losses?

If it’s the former – it might be worth looking at reducing your profit target to balance out the number of winners against losses.

If it’s the later, then consider pushing your profit target higher, so your winners are more substantial.

4. Spotting a trending market … trading in the direction of the trend … and yet somehow still losing money. What went wrong?

Catching a trend is all about timing.

As we all know, markets don’t move in straight lines, and any trend is littered with retracements. We want to trade in the direction of the over-arching trend, but we don’t want to enter just as the market is beginning a retracement.

There are a lot of techniques we can use to help us with this timing, but none of them are flawless.

You can read about techniques for entering trends using flag, pennant and triangle patterns here. And about a favourite of swing traders – Fibonacci levels here.

5. Missing trades because of life … dithering … of a badly timed coffee break …

This happens to me way too often.

My favourite time to be trading clashes with the time when the rest of the Rose family rise from their beds, crash about the house, argue over the bathroom, and generally cause the kind of mayhem that makes a trading floor look like a quiet day at the library.

I’m often sucked into the whirlwind of activity outside my office, and, in a flash, my perfect trade set-ups have happened without me, leaving me with the rest of the day ahead of me to sulk about it.

The problem with weeping over missed trades is that it can lead us to the kind of revenge trading that comes when we believe that the markets “owe us” something. The market doesn’t owe you or I a button. And it certainly doesn’t give a damn that you “nearly caught that trade” … so must be “due a winner”.

A missed trade simply means that our trading accounts are intact. We’ve gained nothing, but – vitally – we’ve lost nothing. And there are many more opportunities ahead of us.

Of course, there are plenty of tools out there we can use to help avoid missing trades – like mobile trading, order to open, and ever more precise technical alerting services. Take advantage of them!

So, that’s my top-five gripes about the markets. I’m sure you’ve some more you can add to this list.

I hope this hasn’t come across as too much of a grumble, because I firmly believe that honing in on the things that really bug us and drive us to distraction, is a great catalyst for change, and is only going to make us better traders.

I look forward to hearing your ideas, so please comment below …

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