We’re down to the last day of the year! Just before they closed shop, I’ve surveyed the rest of the FX-Men for their hard-earned lessons for 2018.
Here are the common themes that popped up:
1. Learn to hold on to high-conviction ideas
Not all trade ideas are equal. After you’ve identified major market themes, fundamental drivers, and profitable setups, you might either have high conviction trades or low-conviction setups.
That is, you might have trades that you’re more comfortable risking money on, and there are trades that you’re willing to take but are not too sure about.
This year, Pipcrawler has learned to tolerate more volatility on his high conviction trades. His EUR/JPY and USD/CAD trades, for example, could’ve gained hundreds of pips more if he had concentrated on the pairs’ momentum instead of closing his trades ahead of economic events.
If you’re REALLY unsure about holding on to your trades but you think that its drivers still have legs, then you might want to think about cutting your position size or re-entering the same trend at a different entry.
You wouldn’t want to waste all your homework on a 2-pip trade, would you?
2. Be quick about switching biases
This year, we saw lots of instances when sentiment turned on a dime or currencies broke away from their usual correlations only to go back again in the next trading session.
This doesn’t mean that we should stay in the sidelines, however. Happy Pip, for one, thinks that she could have been profitable trading the opposite side of her initial trade ideas if she had been more flexible with her biases.
Having biases is not the death knell of forex trades. In fact, it’s a good way to start looking for a trade idea. Just don’t expect your opinion to be the only option for the markets.
Don’t forget that, when it comes to the markets, you have to trade what you see and not what you think the markets should be doing.
3. Risk management doesn’t end at setting orders
Setting entry and exit points is only the beginning of the battle. If you want to maximize your profits, you also have to be willing to actively manage your position. And yes, this also applies for those who trade longer time frames and those who use wide stops.
Here are just some of the questions you should ask while you’re still in the trade:
- Is the pair still following the pattern you’ve identified?
- Did the latest market event just invalidate your initial trade idea?
- Is price taking too long to hit your entry/exit points?
- What adjustments should you make to maximize profits in current market conditions?
Maximize your profits and your efforts for each trade by keeping your eyes peeled for any market changes and making the appropriate adjustments.
4. Avoid recency bias
Succumbing to recency bias is perhaps one of the most common trading problems out there, so it’s no surprise that the FX-Men continue to see it pop up on their trading journals.
For newbies out there, know that “recency bias” refers to the tendency of traders to place more weight on recent events rather than the older pieces of information.
More often than not, this pertains to traders getting discouraged (or overconfident) as a result of their more recent trades.
Thing is, how you traded your previous setups shouldn’t factor in your succeeding trades.
Keep your confidence intact by remembering that losses are as much part of trading as gains and keep your ego in check by knowing that there are always things you can do to improve your execution.
5. Be comfortable taking more trades
This seems to be the most popular lesson among the FX-Men.
The best way to improve is to do more of what works and less of what doesn’t, and you won’t get that if you only take a handful of trades.
Next year, we’ll likely see more scenarios when volatility, price direction, and market themes change every week (or even every day). Again, this shouldn’t stop you from taking trades.
As long as you plan for these quick changes and are flexible enough to make the necessary adjustments and even break your own rules when necessary, you’ll still be able to bag a pip and improve your trading skill in the process.
That’s it for our list this year! How about you? What trading psychology lessons have you learned in the last twelve months? Don’t hesitate to share your two cents!