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As a trader, one has to choose opportune moments in the market. This often requires a level of patience, much like a lion lies in wait for vulnerable and unsuspecting prey. This is often where new traders make the critical mistake of overtrading. Trading just for the sake of trading can often be even more dangerous than not trading. After all, the worst that can come from not trading is that you miss out on a good opportunity. However, just trading continuously in the hopes of securing more gains is not a wise move.
You Can’t Trade An Opportunity That Isn’t There
Waiting for a setup can sometimes be a little boring and even annoying. However, that is the only way that you should be trading. If you are not basing a trade on a technical setup then what are you basing it on? Technical analysis is not the only metric or indicator that a trader should be referencing but is most definitely the most crucial, in my opinion. Ensuring that you have additional confluence will create further confidence in the trade opportunity. Confluence is a vital aspect of trading that definitely increases the odds of a trade playing out as expected.
Trading & Capitulation
Unless you are going short, trading a downward spiral of capitulation is a really bad idea. Look at the recent price action of BTC, for example. I do trade short, so I began shorting when BTC was up at $30K to $32K. I closed all short positions at approximately the $22K level. I didn’t immediately open a long as I was expecting a break to $18K to $19K. This was documented many times but more specifically in this post from May. Unlike other analysts that continue to change their story, my analysis remains unchanged.
Extrapolation puts my bottom prediction at approximately $18K to $19K.
The above quotation is from my post in early May and clearly outlines that I have been planning my setups for the $18K to $19K level. One of the graphs I published is pictured below and indicates that if my bottom target of $18K to $19K didn’t hold it would bleed down and exhaust the entire range of the wedge, which is $12K to $13K.
The likelihood of a bounce at this level was strong, which is why I went long at this point. We have since experienced a decent bounce and long positions opened at this level would now be showing a decent return, especially with modest leverage. I have closed the majority of these trades and am just waiting for the final triggers. If we were to lose 17K I would then sit on my hands until $12K or $13K. I am working with strict targets and I adhere to my analysis, otherwise, why waste my time obtaining it? The target of $12K to $13K was also mentioned in my post from May when BTC was still above $30K.
The image above shows the other graph that pointed to $18K as my best-case bottom target. This level is still providing support at the time of writing. I will obviously be watching the price action quite closely from here.
Harsh But True
If you cannot explain how you arrive at a certain price target, you are not a trader. You may be executing a trade but that doesn’t make you a trader. This is why there are so many casualties. A trade idea has a thesis and there is a story that is made up of confluence and data that points to a target. Many of these “bottom targets” have no thesis, they are simply views, and opinions and carry no weight apart from luck. Hey, even a broken clock is correct twice a day. If you can’t explain your trade it is evidence that you don’t actually know what you are doing. Any success is then luck.
It’s Still Better
Even a failed trade idea is better than a successful “lucky trade”. Good analysis over time will always outperform luck. Approaching the market with the appropriate knowledge works in the long term. Ask the guys who made a fortune in 2021 only to lose it all in 2022. They might not be able to admit it but their success was a case of a "high tide lifts all boats". Those that are able to acknowledge that they are lacking in knowledge and understanding can still become good traders. The rest will probably repeat the same mistakes next time around.
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