AUTOREFRESH 
A Trader Survey
By tonysan || June 2, 2009 at 14:21 GMT
|| 2 comments || Add comment
Another in a series of writings to help better understand the psychology of a trader’s trade…We all have heard of the “rules of trading” — One of these rules is never try to pick the top or the bottom of a a trend or a move.. Most successful traders follow these rules like the ten commandments but of course, since we are human, we sometimes “sin” by using stochastics, experience, or just our instincts…The question is – when we do try to pick a bottom or a top, are we more profitable when we pick oversold or overbought conditions…?
Hi Tonysan. All of my big earning trades have come when I tried to pick tops or bottoms. I started shorting EUR/JPY last year at around 160 and got stopped out around 10 times for various degrees of hurt until I finally managed to get short and stay on. Some years ago I did the same in cable, picking a bottom and getting stopped numerous times before getting it right. My belief is that the market is made up of sheep herding in one direction and it is when you can pick a change in the direction that you make the big returns. It may take numerous tries before getting the timing right but I always try and persevere. In between times, it is then important to stay active in the market so that I can get a better feel for when prices are out of sync.
“When we do try to pick a bottom or a top, are we more profitable when we pick oversold or overbought conditions…?”
Hello tonysan. That’s a very personal thing, not two traders will have the same view…
The way I see it is: if price is within a predefined price range, oversold/overbought condition matched with the range extremes (tops & bottoms) will increase the trade’s odd of success.
Also, oversold/overbought pullbacks against major flows, will provide my best entries.
Other than that, I tend to ignore oversold/overbought readings (ie: I don’t try to bet against what I see as the major flow, picking tops/bottoms using oversold/overbought indicators, instincts, etc.).
That’s what works best for me, but each trader will have to find out what fits his mentalitty & risk profile.