Volatility – Friend or Foe? It’s your choice…

Volatility can make or break you as a trader.  For many traders, it is causing unnecessarily high rates of losing trades. To understand the role of volatility, let’s consider a couple of trading myths that make a perfect sense when you first hear them.  As they are myths, they simply don’t work in practice. Understanding why these 2 myths don’t work in practice, gives us some insights into a key factor of trading success – Volatility. In fact, taking into account this one factor could absolutely make the difference between your success and failure as a trader.

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So what are these myths?

  1.  If your trading system loses 80% of the time. You can simply change your buys to sells (and sells to buys) and you’ll be winning 80% of the time.
  2. Entering the market based on the toss of a coin would see you winning 50% of the time.

This is just simple math, right? Well, let’s see what happens when we introduce another factor into our analysis. Let’s use an example to illustrate. Let’s consider a trade in AAPL with a 5 cent stop loss.

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Jigsaw Trading
After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com.
Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.
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Jigsaw Trading

Jigsaw Trading

After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com. Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.

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