Have you ever looked back on the start of a big trend and wondered why you failed to see and take advantage of it? How about missing a breakout that was so obvious (in hindsight) that you mentally kick yourself in the butt just thinking about it?
Despite what you’ve heard, there are only a number of really good trading opportunities in a given day (or week, depending on your trading style).
It’s not every day that we see a catalyst that would push price action in a single direction for an extended period of time. Similarly, we don’t usually see technical breakouts that are so obvious that they might as well be in a textbook…or in the School of Pipsology.
Consistently profitable traders know that when these opportunities do come, you must be prepared to make the most out of them. But all too often we hear traders talk about how they had “missed the move” on the initial breakout or “jumped in too late” on trends.
Failing to capitalize on strong forex moves is not necessarily a bad thing. However, missing out on too many opportunities could lead traders into committing classic newbie mistakes like jumping the gun or letting losers run.
So, what’s keeping traders like you and me from seeing a breakout or trend reversal as it happens? Here are three possible reasons:
1. You’re too focused on your own trade
In times of heightened market volatility, an average trader tends to focus on how many pips he can get from his trades and how many trades he could have taken. They concentrate on the event and their reactions so much that they miss the big game-changers. It’s not unusual to hear of traders missing out on days’ worth of trends because they’ve resigned themselves to “missing” the initial move.
Consistently profitable traders not only focus on their pips, but they also note the event’s impact on the markets and how it affects the bigger picture. When you believe that a catalyst can propel price action for days, then it’s easier shift your focus into making good entry and exit strategies.
2. You don’t have a strategy for it
Trend-trading is a classic strategy for a reason. You already know where the price is going and it works most of the time. But market behavior is not limited to trends. If you want to maximize each trading opportunity, then you should consider adopting strategies suited for other trading scenarios.
Hit up your fellow forex traders for tips. Search for breakout, range, or trend reversal systems in trading forums if you don’t know where to start. You don’t have to make your own system but you do have to start somewhere.
3. You’re stubbornly sticking to your biases
Sometimes traders don’t see the trend shifts and game-changers because the markets are just plain unpredictable. More often than not though, it’s because they’re actually on the other side of the trade and they REFUSE to see the changes right under their nose.
They’re not exactly blind to reality but their ego and fear of being wrong have pushed them into clinging to their biases. They become so married to their trade idea that they would rather wait for the trend to go back (no matter how much losses they sustain) than admit to being wrong.
Remember that having biases is not a bad thing but clinging to your biases – despite all evidence against it – could spell trouble for your trading account.
Luckily, as with other habits, spotting breakouts and trend reversals can be learned. You can start by keeping updated with the latest forex news. This is so you could get a better feel of how the market works and the catalysts that could influence forex price action.
Making plan B’s of your trades is also good way to promote flexibility in your execution. Consider alternate scenarios for your trades.
What would you do if price didn’t move in your direction? What if it moved faster than you expected? What if it didn’t reach the levels you’re looking at? Aside from increasing your confidence before the trade, the exercise would also help prevent you from getting too attached to your initial trade idea.
In a market where every pip counts, missing out on breakout or trend-reversal trades could draw the line between profit and loss and could take its toll on your trading confidence.
If you want to become a consistently profitable trader, then you must learn how to make price action work in your favor and maximize any and all trading opportunities that come your way.