Ever entered a trade wherein you thought that you had prepared for every scenario, only to be blindsided by an unforeseen event?
If you have, then you, my friend, have been ambushed by the markets!
With overall risk sentiment shifting on a dime these days and investors reacting strongly to global developments, a market ambush could be waiting just around the corner.
Don’t worry, even the most experienced and seasoned traders occasionally freeze when faced with unforeseen events.
In fact, getting “ambushed” by the markets is almost an everyday occurrence.
What separates a winner from a loser, though, is how a trader reacts to those unforeseen events.
Studying past price action, Japanese candlestick patterns, and chart patterns can only go so far in preparing you for surprises.
When faced with an event that you haven’t encountered before or didn’t expect, it’s important that you think quickly on your feet and make calculated decisions, especially when real money is on the line.
You certainly won’t train your mind to react to fear and shock if you just look at the charts. It’s like saying that you can cook a dish just because you read the recipe!
To get used to responding to unexpected events, you first expect them.
Martial arts students usually do well in punching, kicking, and blocking drills while in class.
Faced with an actual attack, however, many of the students freeze and are unable to react accordingly.
As a result, some still get hurt despite their knowledge of self-defense.
Unforeseen events could happen just as easily in trading. Let’s say you have entered your orders just before an economic report is released. Suddenly, the report is leaked a few minutes earlier, and the price action goes crazy enough to trigger your orders.
Since you didn’t foresee and plan for this scenario, you don’t know how to react and you have no idea how to manage your trade.
Promoted: When the Market Blindsides You, What Keeps You Steady?
Unexpected moves can test more than your trading plan. They also test your discipline, adaptability, and ability to make clear decisions under pressure.
In Positive Trading Psychology, Brett Steenbarger explains how traders can turn their existing character strengths into practical trading strengths, helping them respond to surprises without freezing or abandoning risk management.
Learn more about “Positive Trading Psychology: Turning Personal Strengths Into Trading Strengths” on Amazon!
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As my favorite trading psychologist, Dr. Brett Steenbarger, mentioned in his book Enhancing Trader Performance, “What we do not envision, we cannot prepare for.”
If you don’t take the possibility of market surprises into consideration when training or planning for a trade, you might just end up having a mental block and freezing when one takes place.
Of course, it’s not possible to predict every single market scenario and determine how you’ll act in each case, but it wouldn’t hurt to try your best to do so.
John R. Boyd, a U.S. fighter pilot and military strategist, suggests operating inside the mindset of your adversary by using the OODA (observation, orientation, decision, action) approach.
You can apply this to trading by trying to figure out how mobs of traders could react to what’s going on before determining your next course of action.
At the end of the day, it’s all about damage control. Sure, the market came up with something that could potentially screw your trade, but always ALWAYS think about how you can manage your risk.
If you are unable to pinpoint what’s currently driving the market, just cut your losses or jump ship instead of crossing your fingers and hoping that the trade will still go your way.
This article covers what happens when the market springs a surprise mid-trade, and not every shock comes with a warning on the economic calendar. Premium members can read our lesson:
📖 Off-Calendar Risk: How to Trade the News You Can’t Prepare For
Reading this helps you understand why off-calendar moves happen, how to recognize the conditions that make them more likely, and how to build a trading approach that holds up when the market catches you off guard.
And if you’re not a Premium subscriber yet, now’s a good time to sign up.
With Babypips Premium, you get full access to School of Pipsology lessons that help you understand not just what’s on the economic calendar, but the surprise shocks that can blindside any open trade.
