This article shows you one of the many techniques employed by professional traders when executing their trading strategies.
There are many trading methods, systems, techniques and strategies used by professional traders -- from basic moving average-based methods to high-speed, high-frequency quantitative trading strategies.
Trading is trading. Whether the instrument is futures, Forex, indices, commodities, interest rates or individual stocks that make up the stock market; there are common elements to all of them. One common element is how professional traders trade these separate instruments.
Because of this it is possible to identify the techniques professional traders employ to boost your own success in trading.
The most significant goal that every trader is continually aiming for is reduced risk and increased reward on every trade.
This leads to the following...
Professional Traders Trade COUNTER-TREND
This may seemingly go against what you already know about trading -- that you "must" trade with-the-trend to have any chance of success.
Now, trading just plain counter-trend would kill any traders' account in no time -- professional trader or not. This is known as picking-tops and picking-bottoms (link to another article perhaps).
Professional traders will generally have a trading strategy, method or system that underlies the actual taking of trades -- they are not just rolling a dice or trading when they feel like it. There is structure.
There are essentially two types of market scenario traders must deal with:
#1 - Ranging
#2 - Trending
Professional traders treat #1 -- ranging markets -- in various ways. Some will aim to only trade ranging markets, some will aim to stay away from ranging markets and the rest will try to adapt to what the market is throwing at them.
Figuring out when a market is likely to range, and likely to continue ranging, is larger in scope than is possible to talk about here. But simply put, if the market is ranging, and you're trading counter-trend, it is in fact very easy to make money.
The focus of this article is #2 -- trending markets -- and the-how-and-the-why professional traders trade counter-trend when a market is trending.
Going back to what is the common goal among traders -- reduced-risk and increased-reward on every trade -- this is the modus operandi, or underlying goal in-mind while trading.
Markets don't trend in a straight line. They flow. They move, they come back a bit then they move again. Even when the trend is identified it is still about getting the risk down and the reward up.
Going back to the original premise of, 'Professional traders trade counter-trend'. The risk is generally not worth it unless the trader gets a bargain price. In other words, the potential risk must be small and the potential gain must be large.
If the market is in an uptrend, the trader will not try to fight it by selling it. He will trade, what can be regarded as counter-trend, by buying when the price goes down -- anticipating that the down-move is temporary before the trend resumes.
The same goes for the market in a downtrend. He will trade this in a counter-trend manner by selling when the market makes a rise - anticipating the down-move to continue.
This may sound very simple -- and it is. But there is something more to be read into it. So the professionals are essentially just buying 'dips' and selling 'rallies' -- that's old ancient trading "advice".
Here Is The Secret...
The professionals will never be caught buying-the-high or selling-the-low.
The amateur trader is seduced by seeing charts where the market makes a new high, keeps going and never looks back; this looks like a no-risk trade. And it was -- on THAT trade. What the amateur misses is the many times a new high was made and the market came right back.
The professional trader is reluctant to "pay-up". So he misses the one "no-risk" trade where the market makes a new-high and keeps going. So what? He never missed all the low-risk bargains each time the market pulled back.
This article was not about a strategy in the typical sense. But to become a professional trader, you must start thinking like a professional trader. Most professional traders do not have "fancy", "secret" systems. They see the market for what it really is.
Yes, they know things that amateurs do not know.
Yes, they do things that amateurs don't do.
And yes, these things can be learned.
Source : azinearticles
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