Are you usually shorting uptrend and buying downtrend?. In another word, are you usually buying declines after the uptrend has ended and are you usually selling rallies after downtrend has ended? For most traders, the answer is yes, and probably why most statistics claim that only 5% of traders are consistent winner and 95% of traders are consistent loser. There is nothing wrong with being a counter-trend trader, but it is hard work, very stressful and high risk.
In order to win in the long run, a counter-trend trader must have a very high winning percentage because the winning sizes are mostly relatively small compared to the losing sizes. A high winning percentage is very difficult to get, hence why most traders loses in the trading game.
With prudent money management, a trend trader does not require a high winning percentage to win in the long run. Depending on the ratio of their average win size relative to their average loss size, it is possible in the long run to win with just 20% - 30% winning percentage because a trend trade usually provide a very large win size compares to a prudent stop-loss size. It is usually very possible to achieve a 4: 1 win loss ratio when trading in the direction of a trend. Assuming a 4 to 1 win-loss ratio, a trend trader only need about 20% winning percentage to break-even before brokerage fee.
Most traders started out as a counter-trend traders and would remain a counter-trend trader their entire trading career because that is how human brain works. One way to change that habit is through re-programming. The first key to successful re-programming is awareness. Only when we are aware of our weakness can we start to work on changing the habit. One great book that I would highly recommend is "Mean Market and Lizard Brain" by Terry Burnham.
If you like to buy the book please click the link to Amazon provided to the right.
In Mean Markets and Lizard Brains, Terry Burnham, an economist who has a proven ability to translate complex topics into everyday language, reveals the biological causes of irrationality.
The human brain contains ancient structures that exert powerful and often unconscious influences on behavior. This "lizard brain" may have helped our ancestors eat and reproduce, but it wreaks havoc with our finances. Going far beyond cataloging our financial foibles, Dr. Burnham applies this novel approach to all of today's most important financial topics: the stock market, the economy, real estate, bonds, mortgages, inflation, and savings. This broad and scholarly investigation provides an in-depth look at why manias, panics, and crashes happen, and why people are built to want to buy at irrationally high prices and sell at irrationally low prices. Most importantly, by incorporating the new science of irrationality, readers can position themselves to profit from financial markets that often seem downright mean.
Mean Markets and Lizard Brains skillfully identifies the craziness that is part of human nature, helps us see it in ourselves, and then shows us how to profit from a world that doesn't always make sense.
