Common Mistakes: Being Too Mechanical
This being too mechanical sounds a little contradictory after reading that you need solid rules to follow like a robot. The fact is that the Market is basically Organic and moves as a result of human action; this adds a very tricky element to trading. You now must allow for your trading plan to be able to adapt with the market’s volatility and, for lack of a better word, attitude. It must be as mechanical as possible without being too mechanical :-O
The only way to really explain this common mistake is to look at an indicator based trading plan. I say this because if you have a trading plan based on pure price action techniques you will always be somewhat organic by default. When trading a plan based around moving averages as an example; you may end up winning for several months, then all of a sudden you start losing more than you are winning and don’t understand why. You thought you had it figured out, why all of a sudden has it stopped working? The answer is simple; your plan was built around a particular ”˜flow’ in the market that will never remain the same forever. The same applies to all of those wild and wonderful squiggly line oscillators.
If we dive a little further in and assume you considered everything mentioned in my core trading plan concepts article then you likely only have one small hole. You didn’t follow the part about sticking with pure price action techniques. You are likely basing your entries on something that is too mechanical like a moving average or oscillator, they will not let you adapt with the market. When you trade price action you are able to see by eye which swings in price are relative to one another, this in turn allows for that organic element you need. Risk reward and money management are parts of your trading plan that can be mechanical, trade management can also be mechanical but if you were trailing your stop based on relative price pullbacks instead of a mechanical number, you would once again be somewhat organic by default.
This has almost turned into an article against moving averages and oscillators. Not my intention but it is these types of indicator based systems that will force you into being too mechanical and unable to adapt as the market changes pace. Any indicators that you use should be ones that draw in elements that you would want to draw in manually, therefore saving you a job and not telling you what to do. Support/resistance is a good example, if you can find a support/resistance indicator that places a visual on the chart in way that what you would want to dos o anyway, then this is a good thing, if not, you can just do it manually.
To wrap up; being mechanical is the way to go but being too mechanical is possible. Most pieces of your trading plan can be very mechanical but when it comes to reading the market for entry points, pure price action skills will enable you to remain organic by default. Price action is the only way I trade and teach for this very reason, grab my free eBooks for more info.