The trading industry has is becoming overcrowded with new traders. Though this market offers huge profit potential to retail traders, in reality, very few traders can secure profit from this market. The major portion of retail traders are losing money as they don’t know how to deal with the price dynamics. If you trade long enough you will slowly learn to deal with complicated market structure. The reason to refer to the market as complicated is the false spike. The novice Singaporean traders think this is pure manipulation in the price, but it is normal for the pro traders.
The pro traders know the exact way to save themselves from false spikes. After going through this article, you will also learn to protect yourself from false spikes which will make you a better trader. Let’s learn the key technique you can use to protect your trading capital.
Table of Contents
Chose the higher time frame
False spikes are very common when you choose the lower time frame. For this reason, traders are advised not to trade in the lower time frame. Taking trades in the lower time frame puts you at great risk and you will lose money most of the time due to the false spikes. Switch over to the hourly chart and you will notice the spikes as they are not that prominent. You might not even notice the spike in the daily chart at all. So, it’s a very simple method to avoid the false spikes by taking trades in a higher time frame.
Stop using the tight stop loss
Millions of traders are using the scalping strategy to earn money. They use very tight stops to earn a huge amount of profit. But using the tight stop will not make you a successful trader. It will put you at great risk. See the professional scalpers at Saxo. They are not using tight stops even though they can use the price action signal. This is because the spikes in the market can hunt down the stop and cause a big loss for retail traders.
If the tight stop was so perfect, the pro price action traders wouldn’t be using wide stop loss while taking trades using the most prominent pattern. You might think tight stop loss will work but 50% of the time the market will hunt you down. But by using a bit of a wider stop loss, you can eliminate the problem.
Stop trading before the news
You should stop trading before the news as it can impose a great risk to your trading career. Study the price movement before and after the news. You will notice the market show spikes in both directions and wipe out the long and short trade. So to protect your trading capital, you must learn to take the trade with efficient stop losses. But this is not going to work during the major news. Most of the time, people don’t want to take the trade during the news. After losing a few traders they become restless and try to recover the losses in trading.
You don’t have to recover losses using an aggressive method. Wait for the news data and try to analyze the core elements. Based on the technical and fundamental details, create a trading method and fine-tune your trading strategy.
Trade with the trend
Ignoring the trend puts you more at risk in trading. The false spike usually takes place against the trend so if you trade with the trend chances of getting stopped out by the false spike are very low. You should stick to the trend trading method as it can lower down the risk. Most importantly, it will give you the unique ability to take trades with more confidence. So, try not to take trade against an existing trend.