Don't pay dollar to keep 2 cents when wrong. Cut your losses quickly. Trade what you see, not what you think.
Joined Oct 26, 2011
719 Blog Posts

Chart reading and Newton’s First Law of Motion

Chart reading can be simplified into two steps process by following Newton’s First Law of Motion:

“Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.”

The first step is seeing if price is remaining in the state of motion.  In other words, is price trending?

The second step is seeing if there is an external force being applied that stopped the price from continuing its original path.

Basically, if you answer “yes” on the 1st step, there is no 2nd step.

Nevertheless, if you answer “no” to the 1st step; then the matter becomes a bit more challenging.  The burning question will then become: “is this external force powerful enough to stop the original motion from going forward?”

From my perspective, why do we have to struggle thru this 2nd step?  Why not just take your profit first and see how strong the external force is before you get back on the horse to keep going?

If the original motion is strong enough to overcome the external force, then jump back in for the ride.  Yes, you may give up some profit by buying back at a higher price; but once we know the motion is strong, why do we care as long as the trend continues to push forward?

After all, capturing “a piece” of the action is all we asked for, not necessarily the whole 9 yards.  It is those who tried so hard to capture the whole 9 yards that they ended up giving back a large part of the gain or worse, turn gain into loss.

Trading doesn’t have to be complicated.  It can be as simple as 1-2-3.  It is our own human tendency to analyze everything to death as well as our emotional leaning that bring complication to our trading life.

The issue of time-frame.

Yes, while shorter time-frame saw external force in action first, longer time-frame may not necessarily shares the same picture.  However, longer time-frame have a larger risk factor and a much bigger reward that comes with it.  The key question to ask yourself is: “Are you willing to take that larger risk to follow the longer time-frame?”

Some may jump ship from shorter time-frame to longer time-frame ’cause they didn’t want to face the truth of the time-frame that their wallet is suitable for; thus by jumping to longer time-frame, they may unnecessarily shorten their trading life if the trades did not work out as expected.

In summary, find the time-frame that fit your wallet and your style of trading (from minute chart to weekly chart) and stick with it.

Life is simple and so is trading, it is when we try to interfere with our mind that life becomes like a roller-coaster ride.  Perhaps, this is why thrill parks are so popular.  We love to add thrill to our life; but do you really want to pay an expensive fee for the thrill ride in the trading market?

Good Hunting!