One of my colleagues here at Elliott Wave International is an ex-psychologist turned Elliottician who’s been forecasting and trading the markets since the mid-1980s. He once told me this:
“A good trader will make money with a mediocre forecast. A bad trader will lose money even with a good one.”
As I watch the almost unprecedented market volatility we've been seeing since August, I think about that adage more and more often. It’s so profoundly true!
Novice traders (and investors) usually think that an accurate forecast is all they need to succeed. You read "a good forecast," you open a trade -- and then you close it. Buy low, sell high, wham-bam -- you’re rich.
.
That happens only if you’re really, really lucky. But let’s consider a more probable trading scenario.
Let’s say you get your hands on a forecast from a reputable source which says that your market of choice -- a stock, an ETF, a futures contract, option, currency, whatever -- should rally from 100 to 130.
The next morning, you’re at your computer, and just as trading opens, you buy the market. Let’s even say you get filled at 98. Hey, extra two points of potential profit, nice!
You watch the price in the first hour, and it’s up a little, range-trading between 100 and 102. So far, so good! But then -- in a split second -- the price falls 5 points, back to 98. It rallies a little from there -- but then drops another 8 points.
Now your market is trading at 90, and you’re staring at an 8-point loss -- almost eight percent. Not exactly peanuts.
What do you do now?
This is the moment that separates the men from the boys. Some traders would panic and sell -- only to watch the price rise from 90 back above 100 an hour later.
Other traders would hold on -- and watch the price fall to 88...87...85... now leaving them 13 points in the red.
Yes, you could have used a stop-loss. But where do you put it? Two percent below your entry point? Five percent? What if the market first fell three percent, triggered your stop -- and then reversed and shot up to 130, your original price target (as you pull out your hair)?
Sounds like a fantasy? Only if you’ve never traded before.
Here's the moral of the story: The forecast you had -- one that called for the price to rise to 130 -- was good. But the market took its time -- and "a detour" -- on the way there. The price didn’t rise in a straight line, and it tested your nerve more than once. And, despite having "a good forecast," you may have walked away with a loss.
That doesn’t make you a bad trader. But an inexperienced one? Probably. And unless you were born to trade, the only thing that will make a difference for you are the lessons of experience.
Of course, experience takes time to acquire. You may lose a lot of money (and sleep) in the process, too. Are there shortcuts? I only know of one -- namely, find a teacher. Let them tell you about their market experiences. Replace their months or years of being beaten by the market with a few days of learning.
Now is your chance to learn in a live 4-day setting at an upcoming Dick Diamond's Intensive "Market Mentor" trading course. Please see the details below.
Make Your Mentor a Successful 45-Year Day-Trading Legend
Dick Diamond's Intensive 4-Day Trading Course:
Dick Diamond's career since 1960 is the stuff of legend, though it bears no resemblance to what you might expect. Dick is no Gordon Gekko wannabe. You won't see him in a million-dollar car or pressed Italian suit.