If you could describe the market in one word, what would it be? I bet mysterious, mysterious, or magical is the first thing that comes to mind. Because that’s the nature of the market – uncertain.
Supports are falling, resistances are breaking, and the trend line is getting weaker. Period!
However, you must trade that they must hold than break.
This technical analysis for you. Peach beauty!
So you can never be sure what will happen next.
And notice, no matter how old you are with the market, you will still feel the same way.
So how do you navigate this hostility and uncertainty in the marketplace?
Here are some tips for you.
#1 Embrace Market Uncertainty
When you are up to your neck in the market, with vast knowledge and exceptional analytical skills, you often come across so-called “robust schemes”.
You cannot resist temptation. You want to make the most of it. Therefore, you go for broke.
But when something goes wrong, you tend to think, “Why does this always happen to me?”
Remember, the market is a coin and it always has two sides.
When you buy, someone sells and they decide to go short based on their so-called “robust analysis”.
And the market decides who turns out to be the fool (just kidding).
However, this implies that there is a logic to being on the far end of the rope.
Sometimes you end up on the right end, and sometimes you don’t.
So, nothing is certain in the market but uncertainty. And you have to admit it.
Therefore, whenever you encounter an unmistakable attitude, repeat the above verse to yourself.
But some attitudes show more conviction than others. Is it worth it to earn pennies on a reaper?
#2 Learn to deal with probabilities
When you flip a coin, each outcome has a 50% chance.
A trading setup also has two outcomes—success and failure—however, this is quite different.
Its probability ranges from 0.01 to 99.99%.
And the value depends on your analysis and interpretation.
For example, if you are a price action trader and you find a price action based setup, then assign a probability of 60%. If the indicators confirm this, increase it to 70%. And if the long-term chart or chart pattern also confirms this, then bring it up to 80%.
However, you can never be 100% sure. Even if all these factors coincide, it can still fail. This is the market for you.
So never go for broke.
Take the example of crude oil in the chart above. He had every reason to grow. A double bottom formed, the price crossed critical resistance and formed a higher high, broke the 1-year trend line, and the MACD indicator was in bullish territory. So any sane trader would go long. But the market had other ideas.
Because on that momentous day, Iran discovered a passion for world peace, and the country’s minister said that their nuclear policy was negotiable. And the helper of the gesture of peace sent the bulls to the slaughter. However, Iran later clarified that their minister’s statement was misunderstood. However, the oil market did not recover. Intriguing! However, if for some insane reason you were a bear that day, you would be delighted.
These things happen in the market every day. You cannot resist or fight market uncertainty because it is a primer that brings volatility and liquidity, in turn, profitable setups.
So what needs to be done?
Counteract Market Uncertainty with a Stop Loss
Whether a setup has a 10% chance or a 90% chance, always trade with stop losses.
Even if you are very confident in the setup, still trade with a stop loss. Select a wide stop if necessary.
Because the market always provides profitable opportunities, and you need to live one more day to use them.
When you trade without a stop loss, you are putting yourself at serious risk by making your account vulnerable to being hit.
And the stop loss curbs it. So take advantage of this.
Prefer Partial Profit Over Break-Even Stop Loss
When a trade goes in your favor, you receive an “unrealized profit”.
Although it is not realized, it is still a profit, and you must protect it as your own.
But breaking even on entry is not the best path, as pullbacks are one of the common events in the market.
Instead, you can cash out some of your profits and let the stop stay at the original level.
This way you get rewarded for your analysis and stay in the game even if the market dries up.
On the other hand, if you break even on your stop, the market is likely to hit it and then skyrocket.
So much for market uncertainty!
And it stings a lot.
Is it getting too pessimistic?
#3 Hope for the best, plan for the worst
Do not be too skeptical about the market because of its uncertainty.
It just has its flaws.
Keep it simple and positive.
For example, always expect the trend line to hold. However, when it breaks, make sure you don’t lose much.
So, set a daily routine that will prepare you for any challenge. Here is a list of preliminary procedures that professionals do before placing a trade. Check it.
However, all these intricacies matter when you can understand what is happening in the market.
What if you can’t understand what’s going on in the market?
#4 Stay away when you can’t understand
There are several tendons tied to the market – GDP, interest rate, inflation, technical trend and, above all, sentiment.
When all these factors converge on one side, the market makes a huge rally. It’s a beautiful sight if you’d like to experience it.
Even a beginner can easily make money if he keeps up with the market. Profit! Accuracy! SLAP! SLAP!
And it goes into a mysterious state before you realize it. But the compulsion to trade remains with you.
You couldn’t tell if the trend would continue, reverse, or consolidate. Despite the predicament, you make a deal out of coercion.
These are the times when you lose your hard-earned money. And you are trapped in the quicksands of the revenge trade.
So stay put when unsure. There is nothing to be ashamed of. Even experts do it from time to time.
When you pause for a day or two, everything falls into place, and you solve the puzzle.
So give yourself a break!
Conclusion Market Uncertainty
Yes, the market is mysterious and uncertain. But this does not go beyond deciphering. There are people who have deciphered the uncertainty of the market and have come to fruition on a regular basis. So, if you work hard, keep it simple, and take breaks when needed, you are also bound to succeed.