Fade the move - when to go against the current

Many beginner traders make the mistake of blindly following the market direction after extreme moves. For example, when stocks drop by 5% within an hour, many sell in panic, which often leads to poor decisions. Another mistake is the lack of a plan in case of price slippage, which can result in selling at a much lower price than intended. Let's assume you buy stocks for 10,000 PLN and lose 5% due to slippage - that's a loss of 500 PLN. Additionally, stop orders are not always filled at the expected price, which can increase losses.

Following the crowd in extreme market conditions can lead to buying high and selling low. Extreme movements are often the result of the market's emotional reaction rather than actual fundamental changes. Prices tend to revert to the mean, so investing based on momentary emotions often ends in loss. Lack of flexibility and unplanned price slippages further increases the risk of making wrong decisions.

Assume you have a starting capital of 15,000 PLN. Poorly managed trades that end at market extremes can lead to a loss of up to 10% of capital, which means 1,500 PLN. Adding to this slippage and unfilled stop-losses - an additional 5% loss, or 750 PLN. In total, you could lose 2,250 PLN, which significantly limits your ability to continue investing and making profits.

Here are a few steps worth taking:

• Analyze historical data and support/resistance levels to identify situations where prices may revert to the mean.
• Set flexible rules for stop-loss orders, taking slippage into account.
• Instead of acting impulsively, apply the 24-hour rule before making a trade based on extreme movement.
• Regularly review your strategies and learn from mistakes to respond better in the future.

Record your transactions and analyze them afterward to understand your mistakes and successes.