Trading Lessons I Learned the Hard Way, Part 21

08/29/2012 8:00 am EST

Focus: STRATEGIES

Ron Wagner

Principal Partner, RevolutionaryTrading.com

Ron Wagner of Revolutionary Trading discusses the lessons he learned from his early days of trading, and how his trading has evolved to become profitable.

Find the previous article here. Start at the beginning here.

Last time, I talked about the greater opportunities in trading today as compared to only ten years ago. The opportunity to be a self-directed trader and investor could not be any better.

My observation of changes over the years in the market environment is that price movement can be much quicker. With more automatic trading programs, market moves and pivots can be much more dynamic. That’s OK if you know how to deal with it. It’s just part of the learning and adjusting process.

I so badly wanted something to work each time exactly the same way. Sure, some strategies have far higher probabilities than others, but I had to learn to adapt to the market. When I turn on my computer, I no longer wonder if I am going to make money trading, but only how much money. That confidence comes from knowing how to adapt to the different types of trading days we now have.

True fundamental analysis and the old buy-and-hold strategies are just not as reliable anymore. Holding times by funds and individuals have become shorter and shorter, for one simple reason: the shorter we hold a trading position, the less risk we will have. We can compensate for shorter holding periods by adjusting our share size and using good trade management skills.

Each day brings new opportunities, but along with opportunity comes the need for more adaptability to the market environment as it unfolds each day. Pivots are much quicker than ever before during the day. Many days, we see the market gap up or down only to reverse and end up counter to its first move.

Swing trading, which is one of my passions (when the market environment is suitable), requires great patience to know when to take trades. Many think a reliable pattern or strategy can be taken at any time. This was near fatal to my own thinking about 15 years ago.

I have since developed personal strategies where I can take a shorter time frame trade, consider holding some shares longer once profitable, and actually turn a 3:1 reward-risk trade into as high as 20 or 30:1. This requires a great deal of practice and can only be done in the right market conditions.

One of the most important elements I had to grasp was that each part of the day requires a different trading expectation. In addition, each part of the day requires you to trade from the most appropriate time frame chart.

Oh, did I ever get chopped up trading only off the one- and two-minute charts when I first started intra-day trading. Taking quick trades from the 1s and 2s requires great focus and concentration. And although I still take a quick trade from the 1s and 2s occasionally, I have become much more patient and only do that under very specific criteria.

I have found that being more patient, recognizing the type of trading day we are having, and choosing the right time frame to trade in has improved my trading incredibly.

Sector rotation also moves much more quickly than ever before. I might find the best pattern setting up, but if the sector and market are not helping my trade move in the intended direction, it’s often like trying to go upstream against the current.

Recognizing just a few simple elements and working on improving my recognition of what’s going on each day has markedly improved how I now trade. So although I have been trading the same patterns for over 15 years, it has been my understanding of the market and how to trade in different market environments that has made a very significant difference.

Lessons learned:

  1. Don’t try to swim upstream against the current, even if you have a great technical pattern!

  2. We can only control what we can do and not what the market will do!

  3. Be ready to change your market direction bias more quickly than ever in today’s markets!

  4. Sector analysis will be vital to a more robust, successful trade!

  5. Learn how to trade from shorter time frame pivots!

  6. Don’t get chopped up by the 1s and 2s, and learn to be patient and disciplined in your trading!

Next, I’m going to talk about “noise.” When I fixed this, my trading improved much more quickly.

Ron Wagner can be found at Revolutionary Trading.

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