You got a trade setup forming. It looked like it was going to break out to continue moving up. Now what? You tell yourself that it is going to move up now. You got to jump in at a better price before anyone else get to know about the stock. You have a great deal of confidence in that particular stock. Quickly you called your broker and place the order in the early morning. Things are going smooth until you came back from lunch. The stock that you bought was drifting downwards. When the market closed, the stock price was at the low of the day. You started to question what was going wrong. You looked at the chart again at the end of day and you realized that you jumped right at the top. There was no confirmed trade setup. It was just hype. Does this sound familiar to you? That is why confirmation is so important in trade setup. In fact it is so vital that without it we are just taking too much risk with our trading capital.
Confirmation, confirmation and confirmation is the golden phrase in trading. Indeed it is. It is so important that I had to repeat it 3 times. You have heard location, location, location in real estate investment or traffic, traffic, traffic in web. But today we will talk about one of the most important aspect of trading and that is confirmation. How many times does it happen to us that we are jumping into a trade without confirmation and it moves against us? I believe the answer is countless. Why is it so? It is due to our human nature. We try to be smarter than others. But in trading when we try to outsmart the market it most likely will kill us rather than help us. There are many things that affect and move the market and we probably just understand a few of it only. That is why confirmation is vital. It tells us that we are right on track. It tells us that the trading setup is valid. When we have confirmation in our trading setup, it is like "free" money falling from the sky. You just need to pick it up. Of course there are risks involved. But with confirmation, we are cutting the risks down to minimal. Many instances we are lucky and get away without confirmation but that is building in us a very bad habit. You may get away with it for many times but it could takes a single bad trade and destroy our trading capital. It is not worth it.
Let me give you an analogy of this. For those who are familiar with fishing will understand what I am trying to say. The first thing when come to angling is that you got to know what type of fishes you want to fish and what kind of waters you are dealing with. Different types of market require different strategy and different level of confirmation certainty. Is it a choppy market, quiet market, or trending market? The requirement for confirmation varies depending on whether the market is trending, moving sideway or in extreme volatile moves. Once we cast our bait into the waters, we just got to wait patiently for a hit. We might see that our rod being pulled gently by some fishes. Well, that might be some small fishes nibbling the bait. If we were strike at the moment, most probably we got nothing. You see, that is the market noises. The market always moves like waves and small market fluctuation always seems to be the "right" signal to jump in. Well, that is the nibbling of the market "fishes". The right moment to strike is when a have a real hit. You will feel that the rod is being pulled away by strong fish. There is no doubt of it. Yea…That’s the hit I am talking about and that is the right signal to strike. That’s the market trend that is undeniable and that is the confirmation that I am referring to.
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