The common question I find new traders asking is why, when I enter a trade does it go against me. The answer is actually quite simple. The trader is not entering at the optimum time to give the highest possibility of winning a particular position.
Let me explain..........
There are several reasons a new or inexperienced trader may enter the market. Ranging from a gut feeling, seeing a series of candles in a certain direction and entering in hope of a continuation or even just for the sake of trading and the thrill. If you are serious about making money through trading it is important to understand that these are not good enough reasons to put your money at risk.
Lets take a look at the Litecoin (LTC) chart as it stands at the time of writing this article.
Psychology and chart analysis are two of the keys to successful trading. When talking about psychology I am thinking about keeping ones emotions in check. Being sure not to enter just because you are excited about the concept of making lots of money quickly, your bored or you just want to take a punt. Mix psychology and the inability to read a chart properly and you will no doubt lose your investment.
If you take the purple lines away from the chart above one could easily devise that on a strong move up (indicated by the first green candle in the blue circle) occurred and that you would want to get in so not to miss a powerful move up. When in actual fact price has touched the trend line resistance that was previously support to be broken on the 25th of April to form new resistance. If you were to enter on the large green candle you would of seen price immediately move against you as price had tested resistance and the bulls were not able to push through. Hence, price bouncing and gravitating to previous price congestion areas below.
The next area where an untrained trader may enter is the red circled area. Buy on the dips right? Well not necessarily. Yes, price did dip and come within a close range of the horizontal support line but that is not the optimum time to enter the trade. Why? Because when entering a trade you want to enter at a time that will see less risk. If you were to enter at say $173 there is a high probability that price could decline to the bottom ascending channel support than the previous horizontal support at $173.
So if you shouldn't trade the blue or the red circle then when is the best time to enter? The green circle is the winner. Not only will price test the upward trend line support you can clearly see that Litecoin is in an uptrend. Yes, price could still breakthrough support and head down to previous lows at the $157 area but you would only be risking a small amount of money if you placed your stops just below the support trend line. TIP: Always trade in the direction of the underlying trend. You could short / sell at the top of the ascending channel but the underlying trend is up. You would be better to enter at the bottom of the ascending channel to continue the uptrend.
Price may never reach the perfect entry zone however, it is best to wait for the best time even if it means no entry rather than enter at a less than perfect time and lose money.
If you are able to understand why you are constantly losing trades then it is on to learning how to identify key price zones and trends.
Happy trading.