Trading strategies
Explore practical techniques to help you plan, analyse and improve your trades.
Our library of trading strategy articles is designed to help you strengthen your market approach. Discover how different strategies can be applied across asset classes, and how to adapt to changing market conditions.
A market bubble occurs when asset prices rise far beyond any reasonable valuation.
It is driven by speculation, emotion, and the belief that prices will continue rising indefinitely.
For traders, the challenge is more about finding a way to manage a bubble, rather than just identifying that one exists.
By their very nature, bubbles can persist far longer than any logical analysis suggests. There are opportunities as they develop, but timing their peak is virtually impossible.
Understanding their characteristics and having a systematic way of managing bubbles in your trading strategy is worth considering for any trader.
What is a Bubble?
Market bubbles have distinct features that separate them from normal bull markets or even overvalued conditions for a particular asset:
Dramatic Price Appreciation Disconnected From Fundamentals
In a bubble, traditional valuation metrics become meaningless.
Company or asset fundamentals that usually matter to market participants are ignored in the hope of what might be.
Cash flow, profit margins, competitive positioning, and (in some cases) producing revenue may be dismissed.
Widespread Participation And "This Time Is Different" Narratives
Bubbles require mass market participation.
When every headline you see or article you read references "this time is different," or "the old rules don't apply anymore," it is a sign that the collective psychology has shifted from normal caution.
Social media may begin to explode with ever more frequent success stories, and for the individual trader, the fear of missing out becomes increasingly overwhelming.
Credit and Leverage Fuelling Demand
Bubbles are typically accompanied by easier credit conditions.
When interest rates are lowered and investors are confident in general economic conditions, any spare cash is put to work.
In stock or other market bubbles, you may see retail traders maxing out credit cards to buy call options, with the put/call ratio becoming increasingly distorted.
This leverage often amplifies the rise and the eventual fall, making the risk even more acute and potentially damaging to trader capital.
Vertical Price Charts in Final Stages
One of the telltale signs of a bubble's final phase is a parabolic price chart.
Prices seem to go up daily, and every minor pullback is short-lived (creating more buying pressure).
This is the euphoria stage. It is where the greatest danger is.
The fear of missing out on further moves is at its highest, and a logical willingness to take profit off the table diminishes in the minds of ever more excited traders.
New participants may continue to enter solely for the way the price is appreciating. Entering into the move only understanding that what they are buying is going up, so they want to join in too.
Bubble vs. Overvalued: Key Differences
Not every expensive market is a bubble. Several characteristics distinguish a bubble from a simpler and far less dangerous overvaluation:
Elevated Valuations With Reasoned Fundamental Justification
An overvalued market has stretched valuations, but can point to real supporting factors (at least to some degree).
Examples include strong earnings growth, low interest rates, disruption in service or productivity, and providing genuine temporary value.
Even if prices respond to less obvious immediate influencing factors, such as international events, policy changes, and supply issues, the fact that some factors justify continued positive sentiment (even if somewhat unfulfilled) is a positive sign.
Linear or Steady Uptrend
Overvalued markets tend to grind higher with a more sustainable trend rather than a vertical spike. There are normal corrections along the way, even if the highs and lows of a fluctuation are higher.
Reasonable Participation Levels
There is evidence of institutional investors buying on any dips, but common retracements last days or even weeks.
Retail participation exists but isn't frenzied and plastered all over social media every day or referenced in mainstream media consistently.
Some Scepticism Still Exists
There will be some legitimate and contrary opinions about valuations. Major financial media will present both bearish and bullish cases when a stock is discussed.
Trading Strategies for Potential Bubble Management
Here is the scenario: You bought early in the up move, you are now in profit, but some of the bubble signs are beginning to show up in your thinking.
Tiered Profit-Taking Strategies
Don't try to pick the top. As an alternative approach, begin to scale out systematically with partial closes. This will alleviate the potential for FOMO creeping in.
You could stage this with set points, e.g. sell 30% when you've doubled, another 30% when you've tripled, 20% when conditions clearly show evidence of entering bubble territory and, having banked a substantial profit already, you keep the final 20% with a trailing stop for the final run if it happens.
Trailing Stops With Wider Bands to Accommodate Volatility
Let’s assume you see the merit in some form of trial stop. In bubble conditions, normal stop distances will get you whipsawed out. Use percentage-based trailing stops or ATR multiples with enough room to accommodate bigger intraday moves.
For example, if your norm is to trail your stop 1.5 x ATR behind price at the end of every candle, then in increasingly volatile conditions during a parabolic move, consider 2,5 x ATR to allow room to move while still offering protection against price collapse.
Reduce Position Sizing and Leverage
The temptation in bubbles is to maximise gains by increasing your margin and entering more and more positions in one asset.
High leverage and significant single asset exposure in bubble conditions is a potential death sentence to trading capital.
Recognising the added risks you are contemplating before entry is critical. Combining this with an approach that reduces position sizing and increases margin requirements is consistent with good trading practice as risk increases.
Planned and Rigid Exits
Before buying, you should have already made decisions on what exit approaches you should take and the parameters at which they will be executed,
Having the exit plan as you enter can limit the chance of getting trapped by greed. Neglecting this and focusing on the opportunity alone can be disastrous.
Never Assume You Can Time the Top
It is usually a big mistake if you believe you will recognise the exact top and exit perfectly. Let’s be frank, even if you hit it lucky once, you won't be able to every time — no one does.
Recognise Behavioural Biases That May Affect Your Judgment
Bubbles can create powerful psychological forces.
Anchoring bias may mean that you fixate on peak prices. Confirmation bias makes you seek information supporting your bullish view and ignore opposing evidence. Recency bias makes you believe the recent trend will continue indefinitely.
The indisputable key to any bias management is awareness and honesty that some markets may just not be for you (or if they are, to proceed with extreme and continuous caution).
Psychological Preparation for Rapid Reversals
Mentally rehearse the worst scenario and clarity of planned action, e.g., “if it drops 10% in three days, I will ….”.
Having thought through your response and armed with unambiguous exits in advance will make execution easier when emotions run high and begin to dominate.
Final Thoughts
Extreme valuations, little fundamental underpinning, parabolic price action, and universal bullishness should be part of your bubble identification checklist and flag that your bubble action plan should be implemented.
If you are already in, or tempted to be so, then approach bubbles with honesty, awareness of your trading self and extraordinary discipline to follow through, as predicting what and when things may dramatically turn is close to impossible.
Never forget you are not smarter than the market, but you can (potentially) be smarter than many traders by planning and doing the right thing.
Trading is a skill that requires continuous development, self-assessment, and refinement. For traders aiming to achieve consistent profitability and long-term success, following a structured process can make the difference between stagnation and mastery. In this article, we’ll explore a systemized five-step process for trading development, designed to help you identify gaps, take ownership of your growth, and implement effective strategies.
Additionally we will discuss not only why traders avoid this approach (including a checklist) and what YOU can expect if you follow through on some of the methods used Why This Approach Is Often Overlooked While the systemized approach to trading development is logical and proven, it remains unpopular among many traders. This is largely because it requires introspection, effort, and patience—qualities that often take a backseat to the allure of quick fixes. Many traders fall into the trap of chasing the "next big strategy" or the "magic bullet" that promises instant success without the need for sustained effort.
Reasons Why Traders Avoid This Approach: - Impatience: The desire for immediate results often overshadows the commitment required for gradual improvement. - Overconfidence: Many traders believe they can succeed without addressing fundamental gaps, relying solely on luck or intuition. - Fear of Failure: Self-assessment can be uncomfortable and may reveal mistakes or shortcomings that traders prefer to ignore. - Lack of Awareness: Some traders simply don’t recognise the value of a structured development process or don’t know how to start. - Shiny Object Syndrome: The constant search for new strategies and tools distracts from the need to refine existing skills and processes. - Time Constraints: Trading development requires time and effort, which may seem daunting when balancing other commitments. Checklist: Are You Avoiding This Process? - [ ] Do you often jump to new strategies without fully mastering your current one? - [ ] Do you avoid reviewing your past trades and learning from mistakes? - [ ] Are you more focused on finding a winning indicator or strategy than improving your discipline and execution? - [ ] Do you feel uncomfortable facing your trading weaknesses? - [ ] Have you neglected setting clear goals and benchmarks for your trading? - [ ] Do you feel you lack the time to dedicate to structured development? If you checked any of the above, it’s worth reconsidering your approach.
A systematic process may seem less exciting, but it’s the cornerstone of long-term success. Your FIVE steps to trading development We have identified FIVE key areas of work to help you take your trading to the next level. Within each we have identified actions and suggested potential resources to help in your development journey.
Step 1: Benchmarking Gap Analysis Objective: Evaluate where you currently stand versus where you need to be in three key domains: technical skills, risk management, and psychological discipline. Steps: Assess Your Current Performance: Analyse your trade history, win/loss ratio, average return per trade, and consistency over time. Identify patterns in your trading (e.g., frequent stop-outs, giving too much back to the market on profitable trades, over-leveraging).
Define Your Ideal State: Identify those situations where you shouldn’t trade eg, when unwell, or routines you can put in place that will help you focus as soon as you look at your first chart of the day eg, realign with your trading plan. Specify what consistent profitability looks like for you. This might include metrics such as a 3:1 reward-to-risk ratio, an 80% adherence to your trading plan, or minimising emotional trades.
Conduct a Comparative Analysis: Pinpoint gaps in your knowledge, execution, or mindset. Ask yourself tough questions: Are you trading with discipline? Are your strategies well-tested?
Do you have a proper risk management plan? How to Achieve It: Use tools like trade journaling software, analytics platforms, or even manual spreadsheets to document and evaluate performance. Consider seeking out mentorship or coaching to gain an external perspective on areas for improvement.
Be honest with yourself. Acknowledging and owning areas of weaknesses is the first step toward progress. Step 2: Identification and Prioritization of the Gap Objective: Isolate the most critical gaps and prioritize them based on their impact on your results.
Actions: Categorize Your Gaps: Knowledge Gaps: Lack of understanding of market conditions, indicators, or trading strategies. Execution Gaps: Poor timing, impulsive decisions, or failing to follow your plan. Psychological Gaps: Fear of loss, overconfidence, or inability to manage stress.
Rank Gaps by Priority: Focus on the gaps that directly affect profitability or pose the highest risk to your account. For example, improper risk management may take precedence over optimizing your charting skills. How to Achieve It: Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) specific to your trading.
Use performance metrics to quantify the severity of each gap (e.g., how many trades are lost due to poor discipline?). Limit your focus to the top 2-3 gaps to avoid overwhelming yourself. Step 3: Ownership and Plan Clarity Objective: Develop a clear, actionable plan and commit to executing it with accountability.
Action: Create Specific Goals: Example: “Improve adherence to my trading plan from 80% to 90% over the next month.” Break Down the Plan: Define daily, weekly, and monthly tasks. For instance: Daily: Review and refine your watchlist. Weekly: Analyze trade outcomes and adjust strategies.
Monthly: Evaluate progress against set benchmarks. Identify Required Resources: Educational materials (books, courses, webinars). Tools (backtesting software, risk calculators, journaling platforms).
Support systems (accountability groups, mentors, or trading communities). How to Achieve It: Use SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound) to structure your plan. Establish accountability through regular check-ins with a trading partner or coach.
Create visual reminders (e.g., a whiteboard or app) to keep your plan front and centre. Step 4: Learning and Development in Real-Time Objective: Apply your learning to live or simulated markets to reinforce skills and refine strategies – then take LIVE action. Actions: Using a Demo Account for new approaches: Practice executing trades under realistic market conditions without risking real capital.
Setting up a “ghost account” alongside your LIVE account which can be used to test new strategies or see the impact of scaling before you do it in practice (so you get psychologically ready for those bigger profit and loss numbers) Have set criteria for when you will transition to live trading to reduce the chance of procrastination for taking your next step. Use a Trade Journal: Record every trade with details such as entry/exit points, rationale, outcome, and emotions. Analyse trends over time to uncover recurring mistakes or successful behaviours.
Embrace Feedback: Treat mistakes as learning opportunities. Ask, “What went wrong, and how can I fix it?” Review your trades weekly to identify progress and areas requiring further improvement. How to Achieve It: Simulate market conditions closely aligned with your trading style (e.g., day trading or swing trading).
Join forums or groups where traders share insights and feedback. Commit to a growth mindset: mistakes are inevitable but invaluable for learning. Step 5: Testing, Implementation, and Refinement Objective: Measure your progress, refine your strategies, and ensure a continuous cycle of improvement.
Steps: Test Against Key Metrics: Evaluate progress using your ‘results barometer’ (e.g., profitability, win rate, risk management adherence). Close the measurement circle: Make data-driven decisions to tweak your strategies or execution plans. For instance, if a strategy has a low win rate, analyse whether the issue lies in the strategy itself or its implementation.
Create a Feedback Loop: Revisit Steps 1-4 periodically to ensure continuous alignment with your goals. How to Achieve It: Set milestones (e.g., quarterly reviews of your trading results). Use A/B testing for strategies to compare performance under different conditions.
Celebrate small wins to maintain motivation. So If I Do These Five Stages, What Can I Expect in My Trading Performance? By committing to these five stages, you can logically expect a transformational shift in your trading.
Systematic development not only addresses gaps in your skills but also enhances your confidence and decision-making abilities. Here are the key benefits and reasons why this is the primary driver for action: 1. Improved Consistency: - Following a structured approach reduces impulsive and emotional trading decisions, helping you stick to your plan. - With refined strategies and clear benchmarks, your results will become more predictable over time. 2.
Enhanced Risk Management: - Identifying gaps in your approach allows you to minimise unnecessary risks and protect your capital more effectively. - A systematic process ensures that every trade is backed by sound risk-reward calculations. 3. Data-Driven Decision Making: - Regular review and analysis of your trades ensure that you’re making informed decisions based on evidence rather than guesswork. Commit the principle of “evidence based trading” to everything you do from here, 4.
Increased Confidence: - Knowing that you have addressed weaknesses and built a solid foundation instills greater confidence in your trades. - This confidence helps you remain calm and disciplined, even in volatile markets. 5. Continuous Growth: - The feedback loop ensures that you’re always learning and adapting to changing market conditions. - This adaptability is crucial for staying competitive in the long term. Ultimately, it is an unavoidable fact that the primary driver for taking action lies in the fact that trading success is not about finding shortcuts but about building sustainable habits and systems.
By embracing this process, you’ll not only give yourself a chance to improve your results but also develop the resilience and mindset required to thrive as a trader. Summary Trading is not a one-time skill but a lifelong journey of learning and adaptation. Through following this five-step systemized process, you can take greater control of your development, systematically address your weaknesses, and build on your strengths.
Success in trading doesn’t come from luck but from deliberate effort, discipline, and continuous refinement. Take the first step today, and remember: the best traders are always students of the market. And finally, we are here to help.
Our regular education sessions and videos are there to guide you, offering detailed explanation and clarity about many of the things covered in this article.
Top 5 Benefits of a MT4 Demo Trading Account A MT4 Demo trading account is a virtual trading account that allows you to make virtual trades with play money. Demo trading accounts replicate Live trading accounts, but it removes the risk of losing your own trading capital until you are comfortable trading with real money. Most Forex brokers now offer a trial period of their Metatrader 4 demo account to those who want to familiarise themselves with a trading platform.
A Demo trading account is an ideal way to learn about a platform and how to place and manage trades. In a way, a Demo trading account is your ‘L’ plate when you’re just starting or learning to trade. At GO Markets, we provide the MetaTrader 4 (MT4) platform for a trial period of 30 days.
In this article, we will outline the major benefits of using a Demo trading account before going “Live”. These benefits include: 01. A Demo Trading Account is Free There is no cost to download and access a Demo trading account from your broker.
The only thing you need to provide is your name and email address and other relevant contact details. This is to make sure that you can also get support from your FX broker or provider in case you have any question about the Demo trading account or the platform. 02. Theory Into Practice If you’re new to FX trading, there is a lot to learn, especially about the mechanics of how an FX trade works.
For example, you need to know the different lot sizes, what is leverage and how you can use it for your trading, margin requirements, order types, and stop losses. Using a Demo trading account is the best way to put what you have learnt into practice. This will help you gauge your level of understanding before you commit real money.
Gaining any level of confidence in FX trading, no matter how small, always begins on a Demo trading account. 03. Familiarise Yourself With The Trading Platform If you’re a new trader, one of the most important things to do is to familiarise yourself with a trading platform. This is because a trading platform is your vital tool to execute your trades.
The more familiar you are to your chosen trading platform, the better and more efficient you could be with your trading. You also have to consider that different Forex brokers offer different trading platforms. So, it is important that you choose a trading platform that suits your trading style.
Alternatively, if you’re an existing trader and you’re moving from one broker to another, you may be required to use a different trading platform to one that you are used to. Once again you will need to familiarise yourself with the new platform. This process may take time, and a Demo trading account is the best way to get used to a platform without making costly mistakes. 04.
Testing a Trading Strategy There is a saying that goes, “Plan the trade, and trade the plan.” Planning your trades and sticking to your trading plans are vital if you are set on becoming a successful trader. However, it could be easier said than done. Planning your trades and executing your plans accordingly takes time and discipline.
And this is where a Demo trading account could be helpful as you need time to develop and adjust your trading plan and strategy. So whether you are trading manually or using an Expert Adviser, it is best to test your trading strategy on a Demo trading account. A Demo trading account allows you to test and refine your trading strategies without committing real money until you are happy with the results. 05.
Testing Trading Tools Most brokers now provide additional trading tools as a value add to their trading platform. For example, GO Markets provides the MT4 Genesis, which is a comprehensive suite of trading tools. Before using any additional trading tools, it’s highly recommended to test them out on a Demo trading account.
This will help you become more familiar with the tools and determine which ones are the most suitable and helpful for your trading needs. Considering all the benefits we’ve discussed, one thing to remember is that a Demo trading account does not fully prepare you for when you decide to trade for real. Despite all the benefits of Demo trading, it’s also important to note, that there are some drawbacks. » Different Trading Psychology – No matter how long you practice on a Demo trading account, there is no substitute for Live trading.
The main reason is the different psychology when using a Demo trading account compared to a Live trading account. Your mind acts differently once you are no longer practicing with “play” or “virtual” money, and you start trading with your hard earned cash. Where you may have traded larger lot sizes on a Demo trading account without too much concern, it may be harder to pull the trigger on a Live trading account.
Where a losing trade did not matter so much on a Demo trading account, it may be harder to accept a similar loss on a Live account. You may have been confident of your trading strategy on the Demo trading account, but now you’re about to go Live, you’re not so sure. » Risk Management – When downloading a Demo trading platform, beginners can choose how much virtual money they can play with. If the Demo trading goes well, this could easily lead to a false psychological expectation that placing large trades and making large profits is easy.
This leads to poor risk management practices that can carry over to Live trading. This usually leads to a poor trading performance. Demo trading is an important part of becoming a successful trader.
To get the most out your Demo trading I suggest the following: (1) Hone your skills and refine your trading strategy, and most importantly, learn from your mistakes. (2) If you intend to eventually start trading a Live account with a minimum balance of $500, open a Demo trading account with $500. Choose a starting balance on your Demo trading account similar to an amount that you would start on a Live trading account. (3) Treat Demo trading as if it’s the real deal. Try to feel all the emotions of trading – how it feels to have both winning and losing trades. (4) Stick with Demo trading until you are confident enough to trade Live.
At GO markets we offer a 30-day trial of our MT4 platform to both potential. Please click here to start your trial period today. Clients who open and fund a Live trading account with a minimum of $200, are able to get access to a “non-expiring” Demo account.
Please note that trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. You should only trade if you can afford to carry these risks.
Our offer is not designed to alter or modify any individual’s risk preference or encourage individuals to trade in a manner inconsistent with their own trading strategies. See our MT4 tutorial videos here. Rom Revita | Sales Manager Rom is the Sales Manager at Go Markets Pty Ltd and manages the day-to-day running of the Sales, Support and Marketing teams.
He has been with the company since 2013 and is also one of our two appointed Responsible Managers, helping to ensure that the company follows all AFSL regulatory requirements. Rom has extensive financial markets experience and originally comes from an equities & derivatives trading background. He has served on the Trading & Sales Desk with several large broking houses, and now specialises in Margin FX and CFDs.
Connect with Rom: [email protected]
Artificial Intelligence (AI) is no longer a futuristic concept; it is a rapidly evolving reality reshaping industries, including financial markets. For traders, understanding how AI impacts price action and adopting strategies to adapt to these changes are critical to staying competitive. This article aims to explore AI's current capabilities, its profound influence on price action, but also offer some thoughts on how traders can potentially thrive during current and future changes that may impact markets.
What is Artificial Intelligence? Artificial Intelligence refers to the ability of machines to simulate human intelligence and perform tasks such as learning, reasoning, problem-solving, and planning. AI can be broadly categorized into three types: Artificial Narrow Intelligence (ANI): Specialized AI systems designed to perform specific tasks (e.g., chatbots, fraud detection, and algorithmic trading).
Artificial General Intelligence (AGI): A hypothetical stage where AI matches human cognitive abilities, capable of learning and reasoning across diverse tasks. Artificial Superintelligence (ASI): An even more speculative stage where AI surpasses human intelligence in every way. Currently, ANI dominates the landscape and drives innovations across industries.
For financial markets, ANI forms the foundation for tools and algorithms that enhance trading efficiency, accuracy, and decision-making. What is Machine Learning? Machine learning (ML) is one of the most important technologies underpinning AI and its potential applications in the trading world and so is worth just a little more explanation.
In simple terms, it may enable machines to learn from data, identify patterns, and make predictions or decisions without requiring explicit programming for each scenario. Let’s look briefly at the key elements, types and applications of ML that may have trading relevance. Key Elements of Machine Learning Data: Machine learning relies on large datasets, such as historical market prices, trading volumes, and economic indicators.
Algorithms: These are mathematical rules and calculations used to analyse data and make predictions. They range from simple regressions to complex deep learning models. Feedback Loops: Feedback allows ML models to learn from successes and failures, continually improving their accuracy over time.
Types of Machine Learning Supervised Learning: Machines are trained using labeled datasets, such as identifying bullish or bearish patterns in historical data. Unsupervised Learning: Machines find hidden patterns or anomalies in unlabeled data, such as clustering similar market behaviors. Reinforcement Learning: Machines learn through interaction with an environment, receiving rewards or penalties for actions, making it particularly useful for dynamic trading environments.
Applications in Trading Machine learning drives key advancements in trading, including: Predicting price movements using historical and real-time data. Optimizing portfolio allocations. Detecting anomalies or potential fraud.
Automating decision-making processes based on market conditions. Understanding machine learning is essential because it forms the backbone of many AI-driven trading tools that are reshaping financial markets. Concepts like enhanced trend identification, predictive analytics, and scenario planning all stem from machine learning’s ability to process vast datasets and adapt to changing market conditions.
AI’s Current and Future Capabilities in Trading As the evolution of AI expands into most areas that impact on our world, trading is no exception, AI applications in the financial world span a wide spectrum of uses but most fall into three main categories. This comprise: Fraud Detection: Identifying irregularities in financial transactions. Predictive Analytics: Anticipating price movements based on historical patterns and real-time inputs.
Advanced Decision Support: Assisting traders by analyzing complex datasets and suggesting optimal actions. As ANI technology advances, it is expected to refine these capabilities further, enabling: Enhanced sales forecasting for financial products. Real-time risk management tools.
The development of more personalized trading recommendations. In the long term, these advancements are likely to create a trading environment driven by increasingly sophisticated AI systems. AI’s Impact on Price Action Price action—the study of historical price movements to predict future trends—is foundational to many trading strategies.
AI's integration into trading may begin reshaping this traditional paradigm in several potential ways: Enhanced Trend Identification AI’s speed and accuracy in identifying trends far outpace traditional methods: Faster Recognition: Algorithms can process vast datasets in real-time, detecting emerging trends before they are visible to manual analysis. Greater Accuracy: AI can filter out noise and focus on genuine market movements, providing more reliable insights. Predictive Analytics AI’s predictive capabilities extend traditional market forecasting: Forecasting: Using historical data and complex algorithms, AI predicts market shifts with varying confidence levels.
Scenario Analysis: Simulating multiple market conditions, AI helps traders prepare for diverse outcomes. Changing Trend Lifecycles AI-driven strategies could alter the nature and duration of market trends: Accelerated Trends: Rapid AI-driven trades may shorten the lifecycle of trends, making them more volatile and less predictable. Increased Volatility: High-speed trades based on AI predictions can lead to significant price swings in short timeframes.
Behavioural Impacts AI is likely to influence trader behaviour and market dynamics: Herding Behavior: Similar AI-driven insights can lead to collective actions, amplifying price movements. Strategy Diversification: To remain competitive, traders must develop diverse and creative strategies. Challenges and Risks While AI offers tremendous potential, it also introduces challenges traders must navigate: Increased Market Volatility AI’s speed and efficiency can exacerbate short-term market volatility.
Sudden price movements may trigger stop-losses more frequently, disrupting traditional risk management strategies. Flash Crashes Algorithmic trading can lead to flash crashes—sudden, sharp price declines caused by cascading AI-driven trades. These events create liquidity risks and potential financial losses.
Over-Reliance on AI Dependence on AI systems could lead traders to overlook market fundamentals, exposing them to algorithmic biases and failures. Reduced Effectiveness of Traditional Tools As AI reshapes market behaviour, traditional tools like moving averages may lose reliability, forcing traders to adopt more dynamic approaches. Ethical and Regulatory Concerns AI introduces challenges around transparency, data bias, and compliance with evolving regulations, requiring constant vigilance.
How to Adapt and Thrive To improve the chances of potential better outcomes in a new more AI-driven market, traders must adopt proactive strategies that embrace rather than push away likely changes in the traditional ways of looking at markets. These may include: Review and Refine Your Strategies Evaluate how AI might impact your existing methods, particularly those reliant on lagging indicators. Incorporate real-time data analysis tools to complement traditional approaches.
Action: Conduct stress tests on your strategies under simulated high-volatility scenarios to ensure resilience. Leverage AI for Competitive Advantage Explore AI-powered platforms for market analysis, trade recommendations, and risk management. Develop custom AI models tailored to your trading style.
Example: Use machine learning to identify unusual trading volumes across multiple markets, providing actionable insights into potential opportunities. Strengthen Risk Management Practices Adapt stop-loss levels dynamically based on real-time volatility metrics. Diversify portfolios to reduce exposure to single-market risks.
Action: Incorporate scenario analysis tools to prepare for unexpected market conditions, such as flash crashes or sudden policy changes. Stay Informed and Educated Keep up with advancements in AI and its applications in trading by attending webinars, reading industry reports, and engaging with experts. Experiment with AI tools in demo accounts to understand their capabilities and limitations.
Example: Test AI-based predictive analytics platforms to evaluate their effectiveness in your trading strategies. Harness Human Creativity and Judgment Combine AI-driven insights with personal market knowledge to develop hybrid strategies. Focus on areas where human intuition, creativity, and adaptability can complement AI’s analytical power.
Action: Use AI as a decision-support tool, relying on your judgment for execution and fine-tuning strategies. Conclusion AI is transforming financial markets, presenting both opportunities and challenges for traders. While its speed, accuracy, and predictive power can disrupt traditional methods, those who adapt their strategies and leverage AI’s potential stand to thrive.
By refining approaches, strengthening risk management, and staying informed, traders can navigate the complexities of AI-driven markets and position themselves for success. The future of trading is here. Embrace the change, adapt your strategies, and unlock the potential of AI to gain an edge in an increasingly competitive market.
Introduction: Understanding the Impact of Entry Errors Trade entry is a critical moment that is undoubtedly contributory to the success or failure of a trade (although exits remain an additional key component of course). Whilst many traders focus much energy and effort on entries, the importance of a well-planned and so called ‘high probability entry’ is often underestimated. Poor entries can put traders at an immediate disadvantage, increasing risk exposure, reducing profit potential, and fostering a cycle of emotional and often questionable decision-making at this critical point of any trade.
This article delves into the most common entry mistakes traders make, why these errors occur, and, more importantly, how to avoid them. Many of these are insidious but if remain unchecked can lead to disappointment in trading outcomes, and at worst, may result in significant trading losses if they are not addressed over time. Through developing a greater understanding of the psychological pitfalls, potential technical missteps, and strategic errors made behind poor entries, traders can take actionable steps to enhance their consistency and performance in the markets.
Whether you're a beginner or an experienced trader, mastering your trade entry process can have a profound impact on your long-term trading outcomes and ultimate success or otherwise. The great news is that many of these are not “hard” fixes. Although by no means an exhaustive list, and often connected, these TEN errors in our experience appear to be the most common, Use these areas covered below as a checklist, making notes on any aspect that may resonate you’re your behaviour and of course subsequently take appropriate action as needed. #1.
Chasing Price Implications: Chasing price happens when traders enter impulsively after a sharp price movement in a particular direction. This is often driven by FOMO (Fear of Missing Out), and typically results in buying at overextended levels where a trend is already very established and may have almost run its logical technical course. This often results in a trade reversing or at best price exhaustion and little or no positive outcome over time.
Price reversal will often, even with the appropriate risk management in place result in repeated losses. Solutions: Develop a disciplined approach by waiting for either retracements to logical support levels, with of course evidence either of a bounce upwards, or even a breach of a new key level, or previous swing high (or low if “going short”). Either of these approaches may result in achieving a more favourable entry.
Also many trading platforms, including MT4 and MT% GO Markets platforms can use notification alerts to identify when the price reaches these levels, which is a useful feature that may assist in making sure robust decision-making occurs on a consistent basis. Additionally pending orders may also be used as part of your effective entry toolbox, set with more “cold” logic rather than being driven by emotional excitement of price velocity that may often be short-lived. #2. Ignoring Market Context Implications: Ignoring the broader market environment leads to trades that contradict prevailing trends or key market conditions.
T his oversight often results in entering trades with low probability, increasing the likelihood of stops being triggered. For long-term success, aligning trades with the dominant market forces is not only logical but appears from any research performed to be generally higher probability of at least some period of time where it is more likely that price will move in your desired direction. Failure to do so on a regular basis, can leave traders feeling like they're always on the wrong side of the market.
Example: A trader shorts the S&P 500 during a small pullback, not realising the index is in a strong uptrend on the daily chart. The pullback ends, and the uptrend resumes, quickly hitting the stop-loss. Solutions: Perform a multi-timeframe analysis before entering a trade.
Use higher timeframes (e.g., daily if trading an hourly timeframe) to understand the broader trend and ensure the trade aligns with it. Incorporate trend-following tools like moving averages or trendlines to validate entries is of course a common method to help substantiate this approach. #3. Over-Leveraging Positions Implications: Over-leveraging magnifies both potential profits and losses, but the latter can have devastating consequences.
Even small adverse price movements can wipe out significant portions of an account, leading to margin calls (and so taking “exit control” away from the trader) or even complete account depletion. This often traps traders in a cycle of "chasing losses," further compounding mistakes. Solutions: Implement strict position sizing rules.
For example, risk no more than 1-2% of your account on a single trade by adjusting your position size relative to your stop-loss distance. Your maximum ‘Risk per trade’ should be based on your Tolerable risk % of Account size per trade (e,g, 1%) x Entry price to Stop-loss distance. #4. Entering Without a Stop-Loss Implications: Trading without a stop-loss exposes traders to uncontrolled risk.
It fosters a dangerous mindset of "hoping" the market will work in their favour, often leading to mounting losses. A single large loss can undo months of profitable trading, shaking both confidence and capital and so have longer term psychological implications such as loss aversion, which can further distort good decision-making. Solutions: Use stop-loss orders based on logical technical levels, such as below a recent swing low.
Although less pertinent to entry but equally important through the life of a trade is potential use of trailing stops can also help lock in profits as the price moves favourably, protecting against reversals and of course profit targets based on logical potential technical pause or reversal points. #5. Over-Reliance on Indicators Implications: Indicators are helpful tools but are often misused when relied upon as the sole basis for trade decisions. Many indicators are lagging by nature, meaning they reflect past price movements rather than anticipating future ones.
Blind reliance on indicators can lead to late or false entries, especially in trending or volatile markets. Price action and associated volume should be treated as the primary decision making points with indicators used for confluence, Example: A trader buys a stock because RSI indicates oversold conditions, but the stock continues to decline as the market remains in a strong downtrend. Solutions: Combine indicators with price action and market context.
For example, use RSI or MACD as confirmation for setups rather than primary signals. Always validate indicator signals with chart patterns, price range within a specific candle, and/or key levels of support/resistance. #6. Trading News Events Implications: News events often create sharp volatility, which can lead to slippage, widened spreads, and unexpected losses.
Trading without a structured plan during (and arguably before) such events exposes traders to heightened risk, especially in fast-moving markets. Examples: A trader enters a position before a Federal Reserve announcement, expecting dovish remarks. Instead, hawkish comments cause a rapid market reversal, leading to a significant loss.
It is worth noting that it doesn’t even have to be an adverse announcement to that which was expected to disappoint. If one believes, as is often cited, that everything that is known or expected is already “priced in” then even an expected number or news release can fail to provide a potentially profitable price move. Also of course, equally as dangerous to capital is not to be aware of significant market events at all.
To enter prior to these from a place of ignorance that they are even happening is potentially as damaging to capital.. Solution: Use a trading calendar to track upcoming high-impact news events. If trading news is part of your strategy, place pending orders above and below key levels to capitalise on breakouts while controlling risk. #7.
Trading Impatience Implications: Entering trades prematurely often leads to setups that fail or require larger stop-losses to accommodate unnecessary volatility. This behaviour stems from a need to "be in the market," and this “itchy trigger finger” which is in essence a compromise of discipline arguably can increase the likelihood of losses. Example: A trader buys a stock before confirmation of a breakout, only to see the price reverse and remain in a sideways trend for a prolonged period of time not only failing to see that specific trade do well but also arguably adds opportunity risk as that money invested could be in a trade that has indeed set up to confirm a change of sentiment, Solution: Establish clear entry criteria and wait for confirmation, such as a candle closing above resistance.
Articulate these clearly and unambiguously within your trading plan, #8. Misjudging Risk-Reward Ratios Implications: Poor risk-reward ratios undermine profitability. Even with a high win rate, losses can quickly outweigh gains if the potential reward doesn't justify the risk.
Either a failure to have defined acceptable levels articulated within your plan or ignoring (based on previous price action) potential pause or reversal points are the two main causes. Example: A trader risks $500 to make $200 on a trade. Over several trades, a few losses wipe out multiple winning trades.
Solutions: Ensure a minimum risk-reward ratio is stated for example 2:1 before entering. For instance, if risking $100, target a profit of at least $200 to maintain positive expectancy. #9. Over-Trading Implications: Over-trading leads to increased transaction costs, emotional exhaustion, and reduced focus on high-quality setups.
This is often driven by revenge trading or overconfidence after a winning streak. Example: A trader takes several trades in a single session after a loss, compounding mistakes and ending the day with a larger drawdown. Solutions: Set a daily trade limit and focus on quality over quantity.
Use a trading journal to reflect on your trades and identify patterns of over-trading. #10. Ignoring Correlation Between Assets Implications: Trading multiple correlated assets amplifies risk, as adverse moves in one asset can lead to simultaneous losses across others. Hence, even if say a 2% maximum risk is assigned to a single trade, if trades are highly correlated then that risk is multiplied potentially by the number of trades open.
Example: A trader goes long on EUR/JPY, AUDJPY and GBP/JPY and a sharp JPY rally causes losses in all three positions. Solutions: Use correlation matrices to assess relationships between instruments and diversify by trading uncorrelated assets. For instance, balance a forex position with a commodity trade.
Summary: Trade entry mistakes are often rooted in a combination of emotional decision-making, poor planning or preparation, and over-reliance on tools or strategies without proper context. By identifying these common errors and implementing structured solutions, traders can greatly enhance their ability to execute high-quality trades. The key to success lies in discipline, patience, and a willingness to adapt and learn from mistakes.
Start reviewing your entry process today, be honest with any of the above that may resonate with you (As awareness is always the first step in improvement) and give yourself the chance to potentially transform your trading outcomes over time.
Why you need to understand this market concept to improve your trading: Market Correlation For new traders and experienced traders, it can be daunting trying to find the best assets to trade. Whether it be equities, foreign exchange or indices, traders should be trying to have as many factors pointing in their favour as possible when entering a trade. These factors can include, the general trend of the individual asset, the price action at the time of entering the trade, candlestick patterns, use of technical indicators, among many others.
However, one thing that all traders should know about and understand is correlation. What is Correlation? Correlation is the pattern or relationship of how one asset performs relative to another asset.
In statistics, there are mathematical measures of correlation including covariance, correlation coefficients and other terms to describe the relationship of one asset to another. These methods can also be used to quantify asset correlations. A correlation between assets can be positive negative or uncorrelated.
Understanding which relationship between different assets can help provide some indication of the way in which an assets price will go. Below is a diagram that shows how the return of assets can be plotted against each other and the potential relationship. For example, imagine that there are two gold companies Gold company A Gold company B Assume that the price of their shares is perfectly, positively, correlated.
This means that when gold company A’s share price rises by 1% company B’s share price will also rise by 1%. This same price action will occur in reverse if the price of company A falls by 1%. Now in practice no two assets are perfectly correlated.
However, two or more assets may be very strongly correlated. Therefore, identifying how correlated certain assets are and how the price of one impact on the other can be a powerful tool. What creates correlation?
Strong correlation between assets usually occurs because the price of the different assets is material impacted by very similar factors. For instance, two companies in Australia may be more correlated than one company in Australia and one company in the USA. This is because geographically the Australian companies will be affected the local economic conditions.
This may include things such as inflation, taxation policies and other geographical specific conditions. Other factors that can influence the correlation include similarity of the assets or a company’s business operations, being in the same sector or a range of other factors. For example, see the correlation between the ‘Big 4’ banks in Australia below.
It can be seen due to how similar the businesses are and the conditions of which they operate in the pattern on returns are almost identical. Index correlation An important phenomenon to understand is the law of averages and big numbers. Essentially, if large companies are grouped together then they act as a good proxy for the overall market or a specific sector.
This essentially is what an ETF or and Index is. Therefore, as it represents how most individual companies are performing, most companies will be to a degree correlated to the overall market index or relevant sector index or ETF. Size matters Another important thing to understand about how correlation works is that smaller assets or companies will tend to correlate towards the performance of the major players within the sector.
For instance, in the technology sector, smaller technology company’s such as zoom will likely be correlated to larger companies such as Apple and Microsoft by virtue of being in the same sector. Correlations do not just occur in equities and are prevalent in FOREX and commodities. Correlation can be found between growth assets such as the Nasdaq Index which is a technology heavy Index and growth currencies such as the AUD or NZD.
Similarly, more stable assets such as the Dow Jones will likely be more correlated to commodities such as oil, they represent more stable industry and manufacturing sectors. How does it improve your trading? By simply being aware of the direction of the correlated assets, a trader is better able to trade with underlying trend and momentum.
This is vital when trying to optimise edge and improve trading accuracy. It can also equally show when a stock is underperforming or overperforming. For instance, if the general trend of a sector leader is trading 5% higher over a certain period, and a smaller company in the sector is trading at 10% higher it is outperforming the ‘sector’ and understanding why this occurs is an important step into deciphering what is driving price action.
Having a good understanding of how assets correlate can also help find potential trading opportunities earlier than others. This is because by following a sector it becomes easier to see which assets still may have room to shift their price. Ultimately, if a trader can develop their identification of patterns of correlation and the reasons for the relationships between different assets it can provide a trader with a much stronger and accurate edge.
Entries for longer-term stock investment approaches can be based on either long-term technical trends or more commonly, fundamental data related to a company’s current and projected performance. Despite the plethora of such suggestions, there is often a lack of clear guidance, or even a complete absence, of instructions on determining the timing of an exit from a long-term position. Logically, whether it’s a short-term technical entry or long-term fundamental entry, many of the “rules of the game” are similar, including the need for clear and unambiguous exit strategies seems paramount for consistently positive investment outcomes.
The approach originally used to make an entry decision can serve as a good starting point but there are other considerations that can potentially benefit outcomes. This article aims to briefly describe six potential exit approaches you could consider, providing some detail and examples as to how to action your chosen approach. Target Price Exit Strategy Setting Targets: Determine a fair value (and thus exit price target) by conducting in-depth fundamental analysis, utilizing metrics like Price-to-Earnings ratio (P/E), Cash flow, debt levels, book value, or longer-term technical levels.
On-going monitoring: Regularly track the price against this target. For example, if you calculate a fair value for a stock at $50, and it’s currently trading at $45, you might decide to sell once it reaches or exceeds $50. Other Considerations: Regularly review and adjust the target price, taking into account changes in fundamental factors impacting the relevant sector or market as a whole.
Ongoing Fundamental Awareness Ongoing Analysis: Continuously evaluate underlying fundamentals, such as earnings, balance sheets, cash flow, and management quality. Be vigilant not only when next company reporting dates are due but also for the often-unpredictable release of operational updates or changes in guidance. Trigger Points: Identify specific company indicators or information that would prompt an exit.
An example of this may be a sustained decline in revenue or mounting debt levels, particularly when beyond what was originally expected. Other Considerations: Implementing this strategy requires consistent research and a nuanced understanding of the particular business and industry factors influencing the investment. Having the optimum resources in place to be able to do this is vital and identifying these should be a primary goal of any fundamental investor.
Economic & Sector Changes On-going Analysis: Regularly review broader economic indicators like GDP growth, inflation, interest rates, or industry trends. Understand how such changes in these key data points may correlate with the asset price and establish exit criteria accordingly.For example, you may reconsider a position in a technology stock if there’s a widespread shift away from tech spending or growth concerns or regulatory changes that detrimentally affect the sector. Other Considerations: This strategy necessitates a broad understanding of economic cycles, industry dynamics, and how these elements interact with your particular investment holdings.
Additionally, it’s worth noting that appropriate resources should be in place to ascertain this as proactively as possible, or at worst in a timely manner. This may assist in preventing excess depreciation in asset price to the point where action is delayed and major capital damage has occurred. Dividend Targeted Approaches On-going Analysis: If part of your entry criteria and anticipated return from fundamental analysis-oriented trades is based on dividend yield to some degree, it is worthwhile to not only look at what is current but also perform ongoing evaluation of the reliability and/or growth of dividends.
Exit Criteria: Having established an expected return, it logically makes sense to have criteria in place to help decision making. For example a decrease in dividend yield below a certain threshold or a cut in dividends could be part of your potential exit plan for a specific investment. Other Considerations: As well as vigilance for the timing of company announcements where dividend changes are often announced, awareness of the yield of your current investment compared to others, and industry trends is required, as they could influence the sector and the market as a whole.
Time-Based Exits On-going Analysis: Often with time-based exits, there is alignment with a particular impending event. Examples of this type of event include a shift to EVs from petrol-fuelled cars or the impact on assets in the lead-up to an election. Either way, your investment time horizon needs to be reviewed should there be a change in circumstances and the rationale behind your initial thinking on entry.
Other Considerations: There is a discipline involved in exiting from a stock position that remains strong even after an event, or the impact of such, has passed. With a systematic approach to fundamental entries in place, it is legitimate to review whether other fundamental approach criteria are met and perhaps consider continuing to hold. Without this in place, or if no match with other approaches exists, logic would dictate that a planned exit is an exit, and you should action it as such, no matter how well this specific position has served you to date.
Portfolio Rebalancing On-going Analysis: Although not based on a specific entry approach, periodically evaluate your overall portfolio asset allocation is prudent. Reviewing whether the current holdings are still a fit with long-term investment aims and risk tolerance in current and ongoing market circumstances are appropriate rebalancing considerations. Rebalancing Exit Approach: Criteria for rebalancing should be pre-planned and clearly defined.
These may require consideration of multiple factors, such as an asset becoming an excessive portion of the portfolio on good performance, or changes in market or economic circumstances that threaten specific portions of the portfolio. Other Considerations: Continuous monitoring of the portfolio is required, and checking continuing congruence with desired asset allocation and your risk profile is vital. Rather than based on a specific entry approach, just to reinforce that the concept of rebalancing is one that is important across all of the approaches described above.
Summary Although they receive little “airplay” in comparison to technical approaches and exits, the exit strategies within a portfolio based on fundamental analysis entries are multifaceted, frequently interconnected, and equally important to master. Crafting a proficient exit system demands a comprehensive knowledge of each specific investment holding, and wider market and economic dynamics, in the context of your personal investment objectives, and risk tolerance. The need for a set of written system criteria for all actions, regular monitoring, thorough analysis, and disciplined adherence to predetermined exit criteria are essential.