Quantity vs Quality
Hello traders! I’d like to discuss a common misconception that new traders have – that professional traders sit and stare at their computer all day, making dozens of trades during their trading day. In addition, I’ll suggest a progression of trades you can add to your trading plan to help keep you from over trading.
During the classes that I teach, the question often comes up as to how many trades I take during a day or a week. Many new students are surprised when I give my answer of “between zero and three trades a day.” Their surprise is especially evident when discussing the forex market because it is open 24 hours a day, from Sunday afternoon to Friday afternoon! With all that time to find trades, why don’t we trade dozens of times every day? My answer is always, “We don’t get paid on the quantity of our trades, but on the quality.”
In this GBPUSD 60 minute chart, there are a couple of supply and demand levels drawn in, with several blue arrows indicating potential trade entries from those levels. Seeing these high quality supply and demand zones would lead us to take only about five trades in this period of time-which is about 10 days. Why only five? Aren’t their several other support and resistance areas, plus maybe a trend following trade or two in there? Of course! But the professional trader knows to take the high quality levels, those which offer them the highest probability of being correct in a trade. Each one of the numbered trades would have potentially earned the trader anywhere from 70 to 150 pips per trade over the next few hours or days.
In this GBPUSD 10 minute chart, covering only a portion of the previous 60 minute chart, there were a couple more opportunities with correspondingly smaller profit targets. Common knowledge of trading says that the smaller the time frame you watch, the more trading opportunities you will have – with both smaller stops and smaller profit targets. Which then leads to one of my favorite things about the markets in that you get to customize your trading style to your life, instead of working your life around the markets! Not many experienced traders want to stare at the screens for hours a day, trying to take advantage of every potential move that shows up. Most of us want to set up our trades and walk away from the screen, letting us enjoy the rest of our time pursuing other interests. This is the beauty of our current trading technology available to the retail trader! Many platforms allow us to “set it and forget it” – meaning we can place our entry, stop loss, and profit target(s) with a few quick keystrokes in a matter of seconds. Twenty years ago when I first got into the markets, active traders had to be a lot more hands-on during the trading day, rarely leaving our trades alone. Once you have a few high quality supply and demand zones on your charts, most of our time now is spent either waiting for price to get to a level so we can enter our trades, or waiting for price to hit the next level so we can exit our trades! The actual time spent doing the physical activity of trading is negligible.