Trading for the Directionally Challenged

May 24, 2007: 7:18 PM CST

As mentioned in previous posts, you don’t have to be right to make money. In fact, the need to be right can actually cost you money!

If you find yourself frustrated by incorrectly guessing the market or a stock’s direction, give up!  No, I don’t mean quit trading.  Try a different strategy.  Stop trying to guess.

Look back over your past trading results and identify how much work goes into selecting trade candidates and managing them with good money management.  Money management is key to successful investment and trading, almost independent of your trade entry strategies.

Why not simplify the process by diversifying into some non-directional strategies?  There are various books – especially on options – that discuss non-directional options strategies such as the spread techniques, the condor, and the butterfly.

I don’t plan to discuss those here, but merely draw your attention to the fact that they do exist and some traders make their entire livelihood by using these strategies month in and month out while maintaining a day job – you can too.

You don’t have to trade every day and you don’t have to be right to earn a comfortable return on your investment or trading capital.  In trading, work smarter with less risk than harder with more risk.  Achieve your goals slowly, rather than seeking to make 100% your first year (or some other insane figure).

Seek spots where the market MUST do one of two actions and see if establishing a position at that zone or level would be appropriate for a trade.   The goal of course is to maximize price movement in the minimal amount of time with money at risk.  Realize that large moves originate out of low-volatility conditions, and often confound the majority (which, perversely, is what sustains many trends at their birth).

Play around and discover new techniques and observations and make them your own.  Chances are you will have more success with an idea or concept that you understand vs one you read in a singular book or heard at a conference/seminar.  Studying the market is a personal endeavor and taps all your skills and experiences.

Set achievable goals, monitor your progress, and trade for experience – not for money.  Also, stop trying to control the market.  You only have control over yourself.

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