Trading with a Flexible Mindset Parts 1 and 2
This piece that I
include in this week's blog,
basically took on a life of its own as I was working on it. My whole idea of
being flexible was initially based around avoiding getting caught up too much
with the descriptions of bull or bear, bullish or bearish. As I approached the
end, I found myself adding a section referring to today's trading specifics. I,
therefore, decided to split the article into Parts 1 and Parts 2. I hope it
makes sense.
Part 1 (Bulls or Bear)
Trading with a flexible
mindset is a critical skill that all traders must learn. While this may seem
elementary, consider just how often you hear the media label a trader, a firm
or even themselves as a “bull or a “bear.” From my perspective, this makes
little sense within the Forex
market.
Let’s say that you
considered yourself to be a “bull” for the USD, or in other words, you think
that the USD will rise in the future. To me, it’s a vague definition. Does it
mean that you think that the USD will rise forever? Will it just be for a week?
Will it only go up if the pair you are looking at first drops one hundred pips
to a line of support? Without more details in one’s opinion, stating that
someone is “bullish” doesn’t give away much information.
However, I sometimes
fall into this trap myself, and I will occasionally say that I am bullish for a
given currency pair without further explanation. This is, in my opinion, an
overstatement and vague. The reason is that I have formed an opinion before I
analyze the facts.
Example:
I am a Premier League
Soccer/ Football fan, and my team is Everton. Because I always want Everton to
win so badly (similar to someone holding a long position wanting the pair to
rise), I find myself irrationally thinking that Everton is better than they
are. So even though I know my bias changes my opinion, I simply cannot help
myself.
However, in trading,
there is a lot more on the line. If you have a general opinion before you
analyze the current situation, then you are viewing the information without the
benefit of a rational mindset. It may seem quite strange to hear, but it is
true.
Do not misunderstand
me, if you have a current opinion that a currency pair is likely to behave in a
certain way due to your analysis that is fine. But many traders from open-
ended opinions on currency pairs and then try to find an analysis that fits around
that opinion. Let’s say you consider yourself to be generally bullish on the
EUR/USD. The reason for this is that you think the Euro “looks better” than the
dollar.
I am saying that if you
are going to trade successfully, you must evaluate and review facts yourself
and be flexible at all times. Researching and analyzing your trade and picking
the entry based upon trading strategy and assessing the risks involved are all
vitally important aspects of trading.
In my opinion, if you
label yourself as a bull or a bear you take away the flexibility of trading
based on the facts that are in front of you at any given time unless those
facts support your decision to be
“bullish” or “bearish” a particular pair.
I like to think that I
am NOT a trader but a RISK ASSESSMENT manager. I look at the RISKS and check
them before I place the trade. It is a discipline worth having, and while it
might sound like overkill, it’s better to be overcautious than flippant. Once
your trading account is dry, that's it.
It is all common sense
really, and trading currencies are not rocket science, it is about being able
to assemble thoughts, analyze charts and implement a set of strategies and work
within a TRADING PLAN with good MONEY and RISK MANAGEMENT disciplines.
Part 2 (Some Thoughts On Trading To-Day):
A FEW TIPS FOR THIS
MARKET TRADING WITH A FLEXIBLE MINDSET has taken on a whole new meaning of
late, and I want to elaborate with a few paragraphs.
The Current Forex market
is a volatile Chop Fest where even the most experienced traders are being
caught out on the wrong sides of trades, and traders’ accounts are being
squeezed. Being flexible in your approach is vital to trading success today.
Variable Lot Sizes:
When I first started
trading, I traded standard lot sizes only. The broker said this is the way to
go. What utter bulls**t, I left that broker and found a more real world one
that I am still with today 7 years later. I moved from a standard lot account to
a mini lot account. If I want to trade a standard lot, I just trade 10 mini
lots easy.
Now I have five
brokers; two are mini lot only, and the other three are micro, mini and
standard lots. This now gives me the ultimate flexibility of trade sizes. I can
add to or remove partial trade sizes whenever I want. This gives me 100%
flexibility.
Position Sizes and Wider Stops:
Today, I would trade
with smaller position sizes. Use the advantage of micro, mini and standard lot
combinations but trade smaller in this period of volatility. Secondly, because
of the market volatility place your stops a little wider away, but remain
within your TRADE
PLAN guidelines.
Do not be Afraid to Take Losses:
This market sucks! Do
not allow trades to get away from you. Do not be afraid to bank losses. Losses
are a part of trading everyone has them.
If the Market changes Bank the Cash:
In today’s volatility,
if you are in profit and you see your profits start to erode, start to be
aggressive in removing part of your position size and moving stops to break
even. Move stops to break even to protect yourself quicker than maybe you used
to. Take profits off the table. Remember, it’s better to bank some $$$ than
nothing at all.
There are no prizes for
“would could should”. Right now as traders, we have to be lean, quick and
efficient. Again, it’s all about applying common sense.
TRADING WITH A FLEXIBLE
MINDSET covers all aspects of your trading. It is essential to a trader’s
success.
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