HSI towards 28000 level, possible ?Sadly, Hang Seng Index remains in a range bound price action for nearly 3 months since it bottomed out on 19 March 2020.
With the limelight shining at SPX500, DJIA, Nasdaq, etc making new record highs, HSI is still barely creating waves of optimism for its loyal investors/traders.
However, last Friday, it has finally broken out of the resistance level at 24,772 and the next few days closing candles would be crucial to determine if the bullish move is going to continue or if this is a fake breakout, followed by more selling.
Yesterday, I was listening to Mark Douglas, author of Trading in the zone and he mentioned something about Trading Psychology which I would like to share with you all.
He said that many retail traders are unable to accept, feel disappointed, betrayed by the market when they EXPECT it to move a certain way based on the last historical pattern or price action. And that reason is the one that kills many retail traders from making consistent profits. This is unlike the professional traders.
Using HSI chart as an example, if you based on breakout of resistance and buy now, perhaps based on past trends that it has exhibited same patterns before (ie. breakout from resistance and continue higher), it may not play out the way you want it to be. That is to say, nobody can tell you if it will continue to go higher or it is a fake breakout and tumble down.
The difference between going to casino and trading is this :
(Digest this slowly as I think this is important ) - In casino, you have to pay money first (or put down your chips) to see your cards (to reveal the patterns) whereas in trading, you get to see the patterns first (like now, breakout of resistance) and you decide what you want to do (long, wait, sell). Each outcome is random and it is based on probability that out of a series of trades , it will go according to the way you want it to be. That is continue the bullish move.
I have shown you several examples :
Natural Gas :https://www.tradingview.com/chart/NG1!/IbBAlGSl-You-see-but-you-do-not-observe-Arthur-Conan-Doyle/
You can see how frustrating one can be when you trade Natural Gas. The breakout at 2.00 was a false one, trapping early buyers , only to slam them hard with a sell down that closed to a low of 1.596. And it falls back into the bearish trend line.
So, if you expect price action to always obey the rules of break-out from bearish trend line and continue to charge higher, you would naturally be disappointed, feel a sense of betrayal if it goes the other way.
You will let your emotions control you by boycotting to trade Natural Gas again, perhaps, or worse, take on a larger position size to take revenge for the loss you had. Professional traders do not operate like this according to him.
They see a pattern, they recognise it and they trade it accordingly. They do not have any outcome expectation, respecting how the Market wants to operate. But if they are right, they hold on to the profits (ride the trend) and maximise it till it is over (trend reverse). Now, over a series of trades (say 100) , their win ratio might be only 40% (ie, 4 win rates, 6 losing trades) but each win trade gives him double to triple rewards over his risks. The losing trades losses are keep tight as well, always adhering to the 1% to 2% rules, never more than that.
Mathematically, they can be profitable consistently. That also means, returning to the same chart and trade based on what they see when the opportunities present itself. And not doubt if the patterns would produce a certain outcome. By letting go of the outcome and focus on the process, fine tune the money management aspect as precise as possible, all risks are kept to the minimum.
Yes, it does sounds like the professional traders operate like a machine , bearing no emotions and only obey the trade signals that is presented to them. If ascending wedge appears, they short , if descending wedge appears, they long, something like that.
If you are able to grasp this concept and let go of your imposed expectations and held on to your convictions and let the outcomes come what may, then you are on the path to making profits day after day, week after week, month after month. ................
For things to change, I must first change. Jim Rohn
