20
2024/06
Over 90% of traders making meaningless trades!
The financial market is bustling, with investors trading at all times. However, market analysts claim that over 90% of these trades are meaningless. What exactly constitutes a meaningless trade? Let’s explore this topic together.
What is a “Meaningful Trade”?
Before delving into meaningless trades, let’s first discuss what makes a trade meaningful. A meaningful trade must include the following points:
- Clear reasons for opening and closing: Traders must be fully aware of why they are entering and exiting a position. This requires familiarity with the signals used in their trading strategy. It’s not enough to act on hearsay or a casual remark.
- Backtesting and simulation:Before trading, traders should have conducted extensive backtesting and simulated trading to understand the performance of their strategy.
- Standardized signal judgment:When opening a position, traders should use a standardized method to evaluate signals.
- Evaluation of outcomes:Profit should be recognized as a result of the strategy rather than luck, and losses should be understood as a part of probabilistic outcomes rather than poor signal evaluation.
When a trader can confidently include all of these points, their trade can be considered meaningful.
What is a “Meaningless Trade”?
Now, let’s look at the common types of meaningless trades in the market:
1. Random Orders Without Basis
Beginner traders often place orders without a solid basis, following signals they think match what their instructor mentioned and enter the market impulsively. They sell a currency when they feel the price is too high or buy when they sense a trend. Such trades are not only meaningless but also highly risky. It’s essentially guessing, and while they might occasionally profit from luck, consistently guessing will inevitably lead to losses.
2. Guessing Signals Without Backtesting
Another common meaningless trade involves traders who rush to try various market techniques after attending a class or reading an article. These techniques might be sound, but many traders don’t take the time to backtest and observe market conditions. They get excited by others’ profits and start frantically looking for signals. This approach often results in superficial knowledge, lack of confidence in their trades, and ultimately, minimal meaningful outcomes.
3. Trading Based on Gut Feelings
Many traders, eager to apply a newly learned technique, jump into trades when they see similar signals, disregarding the formation, position, and overall market trend. Such trades, while appearing calculated, are just another form of guessing. When evaluating a signal, traders need to be clear about when to trade and when not to and be able to discern signal details accurately. Half-baked trading might look impressive at first glance but lacks substantial meaning.
4. Focusing Solely on Wins and Losses
A major area for improvement among many traders is focusing only on the outcome of trades rather than whether the trade adhered to their standards. Even the best signals can lead to losses; sometimes, a poor trade might result in a profit due to sheer luck. Many traders mistakenly believe they are skilled because they profited from a bad trade. This mindset is dangerous. Trading decisions should not be based solely on short-term profits or losses. The true focus should be whether the trades were systematic, standardized, and properly managed risk. With this, even a series of profitable trades is meaningful.
Conclusion
If your trades match any of the points above, it’s time to reassess your trading strategy. Ensure that you understand the significance of each trade, which will help you learn and adjust in the right direction, ultimately leading to long-term profitability. Only by making meaningful trades can traders improve their skills and achieve sustained success in the financial markets.
