A “Bag Holder” is a slang term in the trading industry that refers to inexperienced traders who hold onto a security or financial instrument until the position is almost worthless.
These bag holders are easy to spot on the charts if you know how to read a chart and you can see the constant battle of supply and demand.
How to avoid being the Bag Holder:
You’ve probably heard it before if you’ve been trading for a while,
you should have a price target in mind before you jump into a trade and if you are using a good trading system and you’ve taken the time
to learn how to correctly read the charts, you should be able to determine how far the price is likely to go so you don’t hold too long only to give
back all profits you’ve earned.
Far to often, new or inexperienced traders guess. They guess when to get in or where to take profits and the emotional side of a trade
can make matters worse if you don’t have the skills to accurately read the charts.
Richard Wyckoff would say that you can determine where price is likely to go based on the price action on the chart.
Learning how to read a chart can take years to master and a lot of new traders just don’t want to dedicate the time necessary to learn
this invaluable skill.
So what do you need to sharpen your chart reading skills?
This is my personal opinion and there are as many ways to trade as there are traders…
but I believe (based on 20 years’ experience) that learning to read a chart,
understand and be able to see the battle of supply and demand on the charts and track the “footprint of Smart Money” will help you determine when price is ready to make a move.
I also count wave structure with volume and I analyze the phases of consolidation (accumulation and distribution).
To determine a price target I always use Point and Figure charts.
Point and Figure charts and how to read them is typically a secret held onto closely by experienced professionals in the business
and most new traders are turned off when they look at a Point and Figure chart and for good reason.
It’s difficult to master and you have to be committed to constant and never ending improvement.
But if you can master these steps, you will be able to accurately determine tops and bottoms and reversals
and you won’t be the “bag Holder” any more.
I use point and figure charts along with the other methods I’ve described in this article when I execute trades for my
trade copier service.
If you would like to learn more about my trade copier service please click here