How To Avoid Getting “Washed and Rinsed“ in the Markets (Part 1)
07/21/2008 12:00 am EST
I have the honor and pleasure of mentoring a number of very talented traders-some who are full-time professional traders and some that trade part-time. And since I am on my 37th year as a professional trader, I've seen and made most any mistake you can think of or name in my own trading as well.
Taking a loss is a part of trading and no matter how good a trader you become, you will always have losses-and sometimes, you don't see the loss coming, so that's why always having protective stops in the market is so very important. But there are also times when traders get 'turned around' and then the market 'washes and rinses' them, which means the trader gets into a position when price makes a new low or high and then gets stopped out of their position on a pullback and then price returns back to and moves on in the original direction of their position [of course, they are flat now, with less capital].
Taking losses cannot be avoided. Being 'washed and rinsed' can usually be avoided, if a trader knows what to look for, keeps their senses about them and doesn't over trade.
This past week, four of the traders I mentor correctly caught the same Euro USD cash FX trade, avoiding the loss most currency traders took earlier in the day and more important, missing the two 'wash and rinses' that occurred right before the quality trade set up in this currency pair. As I watched each of the traders show me their trade sheets and images and tell me how they stalked the trade and managed to miss the pitfalls, as they told me how they set up their entry and stop loss orders, I had to smile to myself, because one of the joys of teaching and trading is that you sometimes get to enjoy the success of your students and the profits you yourself made on a trade. I also caught this nice Euro USD cash FX trade, so I 'doubled my pleasure' four times as I listened to each of the four students tell me the details of their profitable campaign in their one on one mentoring session the following day. In the next ten parts, we'll take a look at the trade and see what the pitfalls were and how some traders got turned around.and more important, how some traders avoided the pitfalls and found the diamonds in the rough!
More in part 2.