Hope, Doubt & Fear in Trading
There is no room for hope in trading. You have learned your lessons, and done your back-testing, or you haven’t. If you are relying on hope in this game you are in trouble. I received an enjoyable e-mail yesterday from a new client who was having a good time with the majors. I knew she must have had some good trading experience before I met her when she told me in her note: “too bad I was on the micro account but the important thing was that I could almost see it coming” in reference to Monday’s sell off in the majors just ahead of the London session. There was no “hope” in her intentions. She knew what she was about, and even had the discipline to stick w/ micros, because the tactics I had taught her were still new to her. Anytime you are adding a new wrinkle to your trading, or trading a new method entirely, you have to either go demo, or go micro. Trading is a game of confidence and the less you risk at first, the more confidence you will have in your execution. Her statement tells me a lot about her confidence, and that she stayed awake longer than usual and maintained her focus – she lives on the U.S. West Coast. The fact that she rode it down to Pivot S1 really made me happy. She may not consider herself a professional yet, but I know she’s on her way because you don’t keep hours like that unless you’re confident in your ability to execute your plan. Keep in mind it’s just one e-mail – people don’t generally send nice notes when they lose.
Doubt is not as bad as hope. Doubt will actually save you money because more times than not you have doubts for the right reasons. But the bottom line is if you have doubts you cannot execute, so you should not be trading. Doubt is a problem for many traders trying to operate in the U.S. session where we generally see an increase in volume but a stronger propensity for directionless trade. The competition increases and the U.S. session is still dominated by professional mean reversion, or counter-trend traders who swing very large lines. Despite directional traders having taken over star status on many Wall Street and bank trading desks the mean reversion, arbitrage traders with their custom Bollinger Bands and volume and price distribution charts have not gone away just yet, and in fact only get stronger in sideways markets. If you are a directional trader and only operating during U.S. hours your doubts may be well placed, not for the method, but for the timing. To operate in the U.S. only you need to be adept at trend and counter-trend trading – not for beginners.
Fear cripples, period. Fear is almost always a factor of not having the correct method. If your method doesn’t fit your risk reward outlook you will never develop a trader’s mind-set. If you do not subconsciously believe that your method works you will never have the strength to weather draw-downs and adjust your sleep schedule. The trader’s mindset is what makes you a success. Without the proper tools to do the job you will always subconsciously know you are wasting your time and money. Method is your primary tool. You had better believe in it. To believe in it you need to be able to go back and back-test it in all markets on all time frames. And if you use fact based triggers, meaning triggers based on price closing beyond a specified level, and trade in extremely liquid markets, you don’t have to worry about market behavior changing any time soon – at least not in our lifetime.
The answer to most of these problems is also the style of trade which yields the most favorable risk reward: End-of-Day trading, also known as Position trading. You only need to check in once a day, it’s easy to back-test by hand, and by starting out with micros or minis, you don’t have to risk a lot before determining it’s not for you.
Jay Norris
www.trading-u.com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency.