“Successful market makers have controlled the ego
-based need to be absolutely correct. Because markets are constantly in motion, it is almost impossible to be exactly right on (in your entries).” Such a probative approach to the markets is at the heart of most successful professional trading.
Dealers know full well that their first foray into the trade is often wrong. They rarely commit the full position amount on the first try.
One of the key differences between professionals and amateurs is that professionals scale into trades while amateurs average down. This statement may seem like clever wordplay, but it’s not. Let’s assume that both the professional and the amateur decide to risk two percent of their capital account on a particular trade. The professional knows full well that he will not be able to hit the exact entry point on his first attempt. Therefore, he may allocate only 0.3% of his capital to the first entry, 0.6% on the second and 1.2% to the third – and stop himself out at -2.7% away from original entry price (-2% risk).. Read more here.
Having dispensed with disclaimers, let’s examine one common strategy many retail traders like to follow – the break-out trade. Using dealing methodology, here is an approach to possibly make the trade less risky. As shown in Figure 1, the trader can scale into the trade three times. By diversifying his position, he does not even need to have price exceed his initial entry point to record a profitable trade! If, however, he is correct in anticipating the direction, he still can capture the move with a partial entry. Consequently, by modifying the risk, the retail speculator can improve
Don't hate market makers.Trade like them.
