Every beginner is looking for ways to take money from the market without risk.
This is something like puberty in adolescents.
It seems to you that you are chosen and unique. That you will be able to come up with something that others have not guessed.
You start looking for the Magic Grail. Everyone goes through it.
Bollinger bands, Elliott waves, trading without stop losses, magic indicators that give signals to enter and exit the trade, search for logic in positive and negative funding in the market, trading on news, heads and shoulders, triangles and flags, breakouts and rebounds from support and resistance levels...etc
In the following posts I will tell you about each of these holy grails that have eaten up a lot of trading accounts, but today I will start with another one.
My favorite.
Simultaneous long and short of the same coin.
When you first think about it, it seems like a great idea to you.
No risk.
Long equalizes short.
You can enter the trade at any time and exit it at any time. Sounds tempting.
The problem is that when you try to make money on it, you don't succeed.
At first you think it's some kind of mistake and try again. And you lose money again.
What's going on?
Math doesn't let you cheat the market, bro.
I'll explain briefly.
Your idea has a negative mathematical expectation.
Do you think you have nothing to lose by opening two trades in opposite directions for the same amount of coins?
You're wrong.
As soon as these two trades are open, you already owe the market four trading fees for entry and exit.
That is, to at least reach zero, you need to earn something.
How can you earn money in such a trade?
After all, when a long and short are open at the same time, the loss on one trade balances the profit on the second trade.
You can earn only if you stop a losing trade and keep a profitable one. Or close a profitable trade and wait until the unprofitable trade goes in the right direction.
But even in this case, you will still need to earn money to cover the trading fees first.
What happens most often?
You open two trades, after that the price goes sharply in one direction. You reassure yourself that you haven't lost anything yet because one trade shows you a good profit, and the second one shows the same loss.
You decide to lock in a profit and close a profitable trade, leaving only the unprofitable one, hoping that the price will go in the right direction for you.
At this moment, you are doomed.
If the price really goes in the right direction for you, absorbing the loss on the second trade, greed will not allow you to close this deal until the PNL turns green.
At this moment, you don't care about the market situation.
You're waiting for the price to give you a few more percent. You promise yourself that you will wait a little longer and close the trade.
But suddenly the price turns around and you're in the red again.
You're angry at yourself for being greedy, but you don't do anything. The price goes even further.
You decide to reopen the opposite deal to balance the losses.
But now you have a difference in the entry price between the first and second trade. This is your net paper loss. Now, in order to reach at least zero, you need to pay this gap and six trading fees with profit.
The loop is gradually tightened.
You will ride on this swing until you give up and close a losing trade by paying all the gaps and trading fees. Usually these are monstrous losses for your trading account.
Sometimes traders manage to make a loss in both directions, being greedy and afraid at the same time.
You know what's funny?
You're doing this for a sense of security. It seems to you that you are not risking anything, although opening these trades you are guaranteed to be in a worse situation than if you just put a stop loss in one trade.
Just put an adequate stop loss.
That's all.
You're safe. You control the situation for the same money that you were willing to give for this dubious grail.
To be continued.
This is something like puberty in adolescents.
It seems to you that you are chosen and unique. That you will be able to come up with something that others have not guessed.
You start looking for the Magic Grail. Everyone goes through it.
Bollinger bands, Elliott waves, trading without stop losses, magic indicators that give signals to enter and exit the trade, search for logic in positive and negative funding in the market, trading on news, heads and shoulders, triangles and flags, breakouts and rebounds from support and resistance levels...etc
In the following posts I will tell you about each of these holy grails that have eaten up a lot of trading accounts, but today I will start with another one.
My favorite.
Simultaneous long and short of the same coin.
When you first think about it, it seems like a great idea to you.
No risk.
Long equalizes short.
You can enter the trade at any time and exit it at any time. Sounds tempting.
The problem is that when you try to make money on it, you don't succeed.
At first you think it's some kind of mistake and try again. And you lose money again.
What's going on?
Math doesn't let you cheat the market, bro.
I'll explain briefly.
Your idea has a negative mathematical expectation.
Do you think you have nothing to lose by opening two trades in opposite directions for the same amount of coins?
You're wrong.
As soon as these two trades are open, you already owe the market four trading fees for entry and exit.
That is, to at least reach zero, you need to earn something.
How can you earn money in such a trade?
After all, when a long and short are open at the same time, the loss on one trade balances the profit on the second trade.
You can earn only if you stop a losing trade and keep a profitable one. Or close a profitable trade and wait until the unprofitable trade goes in the right direction.
But even in this case, you will still need to earn money to cover the trading fees first.
What happens most often?
You open two trades, after that the price goes sharply in one direction. You reassure yourself that you haven't lost anything yet because one trade shows you a good profit, and the second one shows the same loss.
You decide to lock in a profit and close a profitable trade, leaving only the unprofitable one, hoping that the price will go in the right direction for you.
At this moment, you are doomed.
If the price really goes in the right direction for you, absorbing the loss on the second trade, greed will not allow you to close this deal until the PNL turns green.
At this moment, you don't care about the market situation.
You're waiting for the price to give you a few more percent. You promise yourself that you will wait a little longer and close the trade.
But suddenly the price turns around and you're in the red again.
You're angry at yourself for being greedy, but you don't do anything. The price goes even further.
You decide to reopen the opposite deal to balance the losses.
But now you have a difference in the entry price between the first and second trade. This is your net paper loss. Now, in order to reach at least zero, you need to pay this gap and six trading fees with profit.
The loop is gradually tightened.
You will ride on this swing until you give up and close a losing trade by paying all the gaps and trading fees. Usually these are monstrous losses for your trading account.
Sometimes traders manage to make a loss in both directions, being greedy and afraid at the same time.
You know what's funny?
You're doing this for a sense of security. It seems to you that you are not risking anything, although opening these trades you are guaranteed to be in a worse situation than if you just put a stop loss in one trade.
Just put an adequate stop loss.
That's all.
You're safe. You control the situation for the same money that you were willing to give for this dubious grail.
To be continued.