Have you ever shown another trader a chart and you saw a great potential long and she saw an equally good potential short?
Or have you taken a trading course and seen the instructor take great trades, but for some reason you simply couldn't see the setup until after the trade closed?
Well, there could be several reasons for this. In this post, I'll show you seven reasons why two traders can look at the same chart and see completely different trades.
I hope that this post helps you understand what could be going on in your own head as well as in the minds of other traders.
More importantly, I hope that it helps you understand that opinions can easily change from person to person, from and moment to moment.
So you need to stick to your trading plan and protect your mental capital against the opinions of others.
1. They're Currently in a Position
Having some “skin in the game” is best reason to have a strong opinion about a chart. If you are short the AUDUSD and you start talking to a trader who is long the same currency pair, then each of you are probably going to defend your position.
When you take a trade, it's like putting on colored glasses. You will always see the market differently.
So regardless if a trade is good or not, it will always influence the opinion of a trader.
2. Completely Different Trading Personalities
As I have written about many times before, your Trading Personality plays a huge factor in determining the trading strategies that will work for you.
So whenever you talk to someone about trading strategies or positions, it's vital that you first get a feel for what type of Trading Personality they have.
If their personality matches yours, then it's probably beneficial to trade ideas. But if you have totally different personalities, then you can take a look at what they are doing, but it's probably not a good idea to let them influence your trading.
3. Different Timeframe Focus
This is a classic one.
You are in a long swing trading position on the daily chart EURUSD and you start talking to a day trader. As you talk to this trader, he is pretty convincing as to why the EURUSD will start to fall. So you start to second guess your trade, or you might even alter it.
But he could have been talking about what he thinks will happen in the next 24 hours, while your trade would take a couple of weeks to develop. Make sure that you are both analyzing the same timeframe, otherwise it's almost as if you are speaking different languages.
4. Burn Bias
Traders can have bad experiences in trading that can create cognitive biases. It's like if you burned your hand around the campfire as a little kid. You would probably stay away from that fire for the rest of the trip.
For me, I lost quite a few breakout trades when I first started trading. To this day, I won't trade a pure breakout entry.
I probably could trade a breakout strategy, but I just haven't tested them. It's not right or wrong, just a bias that I developed from previous experience.
So if another trader tells you that your trade doesn't look good, they could simply be speaking from their own experience of being burned before. That's where relying on your testing and journaling comes into play.
Let the data tell you what to do…not the opinions of others.
5. Different Trading Strategy
A difference of opinion about a chart could come from something as simple as having different trading strategies. Maybe you are a trend trader and the person you are talking to is a countertrend trader.
Well, then you are going to look for very different things on a chart. There is no right and wrong, just different ways of approaching trading.
6. Trading Skill Level
Skill level can certainly play a role in how two traders will look at a chart. A more experienced trader might see nuances in the price action that a newbie might not be able to identify yet.
New traders also tend to jump from system to system a lot and get really excited about the last YouTube video that they just watched. So if you are speaking to someone about a chart, make sure that they have some experience behind their statements.
7. Different Mental States
Finally, if a trader is having a bad day, then that could change the way that she sees the charts. We've all been there…
It starts raining out of nowhere, your car breaks down and you spill coffee on your shirt as soon as you enter the office. Bad days (and mental states) happen to everyone.
If you or another trader are distracted, then that could lead to an inaccurate analysis of a chart. Become a keen observer of your mental state and you will be much less likely to misread the charts.
So those are the most common reasons why two traders can see a chart very differently. Obviously, there's no right and wrong when looking at a chart.
We all have our own trading methods, experiences and biases that tell what what a good trade looks like.
The next time you are tempted to tell someone that they are in a bad trade or you are tempted to alter your trading, based on the opinion of others, be sure to remember this list. They are perfectly good reasons why your opinion is just as valid as the opinion of another trader.
Follow your plan and let your edge work for you.