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 the year.
Here are the common themes that popped up:
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.
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?
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. Speaking of making adjustments…
Forget that perfect trade
2019 has presented us with market themes (ex: Brexit and U.S.-China trade negotiations) that can change market sentiment and price direction every other day.
If you try to hang on to a trade idea that’s no longer valid, then you run the risk of “following” your initial trading plan but not managing your trade well.
Entering at entry and exit levels that aren’t in your initial trading plans isn’t without risks. You may find yourself getting spooked out of a good trade idea, or letting your losers run at the beginning.
But if you find the balance between sticking to your trading plan and maximizing your profits, then you’ll have a better chance at profitability in the long run.
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!