The Greatest Skill

The Greatest Skill

One of the greatest skills you can develop is the ability to differentiate between trending and range bound behavior. Price is continuously cycling between price expansion followed by price contraction followed by price expansion followed by… ad nauseum into infinity. You cannot profitably trade them both the same way. Trending usually offers a high return environment unless late in the trend or excessively extended. Ranging (including choppiness and whipsaw price action) is usually a low return environment unless you identify it as a range and trade it accordingly. 

 

How do you define and identify a trend? A range? Each speaks to when it’s better to enter a breakout and when it’s better to enter a retest, checkback or pullback. When to step on the gas or tap the breaks with position size or number of open trades.  And by better, I mean an edge in probability, timing and risk vs reward. Each speaks to different or adjusted stop management practices in order to give the trade room to work without choking the trade. And suggests when (places) to lock in partial profits or gains. 

 

Consistently profitable trading doesn’t have to be complicated but it does require repeatable processes and methodologies. It does require identifying, planning, and defining HRE and LRE environments, setups, and triggers for your particular strategies. Thoughtful practice with charts is your best teacher. Review historical data, trending vs. ranging price action, and post analysis of your trades… all will point the way if you take the time to do the work. Once that’s done, you’ll need to address the second major part of successful trading, which is managing and mastering your psychology in order to maintain discipline. Your financial and psychological capital must be protected through awareness and discipline in order to preserve your resiliency. Read more about discipline.