BPA trading room Q&A: January 30, 2015
I’m a beginner. I often find myself paralyzed and afraid to take a trade. Even if I’m sitting here and ready for the trade. I was waiting to get short on bar 20, but with bar 19 did not want to get in below a bull bar. Any advice for beginners cherry-picking too much?
Audio duration: 3min 50sec — Scroll down for image
Okay, you wanted to short on bar 20 but you did not want to short below 19. That’s okay.
My first thought is, whenever a trader is starting out and they’re afraid to trade, what they’re saying is they’re afraid to lose money, and what they’re saying is they really care about not losing money. The obvious solution to that is you have to get to the point that you do not care.
A lot of traders starting out have a limited account size, and if they care and their account size is not big enough so that they can trade and not care – for example, if you buy above 1, your stop is down here (below bar 1 – Al’s cursor), you’re risking $400 on the first trade, and if you have a $5,000 account size, you cannot take that trade. So if you’re starting out and you have a small account size, and the bars are big, and you need big stops like risking $300, $400, $500 on a single contract, you have to wait. You cannot trade, and that’s okay.
It’s nice to be able to say, “Oh, I can trade any market. I don’t care if I have to risk $1,000 on the trade, I can take the trade.” But a lot of traders starting out, that’s not their reality. Their reality is they have a small account size and they cannot take trades where the risk requires them to trade more, and to risk more than what they wanted to risk. And that’s okay. To me, every one of us is in a different position in life, and every one of us has to live within our comfort zones. Trading has to be fun, and if you’re worried about blowing out your account, then that’s not fun. To me, I just accept where I am in life. Would I like to be trading 1,000 contracts and not caring? Sure, but that’s not where I am. So you just have to accept your position in life, and try to make the most of it. And if you’re not able to take the stop that you need to use on a particular trade, don’t take the trade.
One option is to trade Forex markets because you can trade very small. Theoretically, you can trade like a $500 account or a $200 account. Realistically, no one’s going to trade that, but you certainly can trade a $1,000 or a $2,000 account and trade very small positions, like the equivalent of $10,000, 10,000 units and not risk much. You can say, “Al, I can’t get rich if I only make $12, $13 on a trade.” That’s true, but what you can get is experience and comfort, and that’s very important. So if you cannot trade the Emini on a day like this where you have to risk 10 points, then you got to think about trading something else. One possibility is Forex, or if your account size is big enough you can trade stocks. There are a lot of stocks that trade really well. Some of them are not very expensive. For example, the XLE and some of the ETFs.
The bottom line is, if you’re paralyzed, you’re probably afraid of losing money, and that’s good. Your instinct is correct. Would you really want to be risking $400 buying above bar one if you have a $5,000 account, the answer is no. So let me totally reassure you that not buying above one is a wise decision if you have a small account size. It’s appropriate to be paralyzed and fearful. Selling below 19, you got a triangle, yes, but you have a lot of bull bars. And Al keeps saying that we’re going to form an early low of the day, so do you want to sell below 19 with a bull signal bar? I’d say no, just wait. Just be patient.
Bar 22 is interesting. You got a wedge bottom, and it was the low of the next couple of hours. So you could buy above 22, low risk, probability not high, but low risk. So you can just wait during the day for those few options where you do not have to risk very much, and therefore you do not have to care very much. Most of the time when you have low risk, you have low probability, but you have low risk. That means even if you have a small account, you can still take the trade if it’s a reasonable trade.
Information on Al’s Online day trading room