Updated from its original posting on 27-01-2010
A fundamental mistake many novice forex traders make is to forget to assess what type of market they are working with and adjust their approach accordingly.
Navy Seals and Army rangers are trained to carry out missions on many different kinds of terrain: deserts, swamps, jungles, tundra, oceans, or Pipcrawler’s castle.Without this training, their effectiveness would be limited: they’d struggle to survive on unfamiliar terrain because their skills wouldn’t work (imagine a solider in white winter camouflage, trying to hide in a dark green jungle).
The same is true for new traders. Instead of geographic environments, you must pay attention to the market environments you are in, and use the right approaches for where you are. After all, the markets constantly change and what drives price action today, this week, or this year, will be different next year, next week, and even tomorrow.
In the world of forex trading you must be just as flexible and adaptive. You must adapt to changing trading environments, either ranging markets or trending markets.
You must be able to quickly change your bias on price direction as new information (i.e. economic report, political events) arises.
A short-term memory and not being stubborn leads to flexibility in your trading. Short term memory means that you start every trade fresh without any preconceived notions of what will lead to success or failure. Start from scratch. Not being stubborn means you are open to change and changing your opinions as necessary.
The flexibility to adapt not only leads to survival in nature, but in the markets as well. A single individual animal is not stronger than the forces of nature. A single trader is not stronger than all the aggregate forces in the market.
Don’t relive yesterday’s trades during today’s trading session. The decisions or opinions you had yesterday that lead to success yesterday can lead to failure today.
Don’t ever think you can stick to your outdated opinions and views, when the market tells you are obviously wrong, you will lose every time.