The Circle of Consistency
Consistency feeds on itself just as repetition leads to near-perfection. If you want to be consistent in your trading you need to be consistent in your pre-trade ritual, and market overview, and in your trade selection process. Your thinking and decision making process must be consistent. When I’m doing my walk meditation prior to sitting down in front of the screen I think the same positive thoughts and I see the same chart in my minds-eye with price always playing out my way. Regardless of the time frame you trade your definition of a trade set-up and signal — and these need to be very specific and listed in your trading plan –should be the same. Because market movement typifies fractal geometry you can use the same determinants for entering and exiting a trade regardless of the market and regardless of the time frame.
Managing trades should be very similar from one day to the next from one market to the next. The only time your position sizing should be different is if you are entering into a counter-trend trade or a trend trade, or a short-term trade vs. a posiiton trade. Even this should be consistent as you always trade X lots for a day trade and Y lots for a position trade, and Y lots for a counter-trend trade and X lots for a trend trade. Ideally for your first few years of trading you should always trade the same time frame, at the same time of the day — if you’re a short-term trader make it the London session.
Ideally the type of trading you do and the time frame you do it on should be consistent. If you have a day job, it’s unlikely you can be a day-trader, unless you are free during London hours. You may choose to be a position trader only because it takes the least amount of time to do. But if you do try to day-trade also you will likely find the long-term position a distraction, in which case you should stick with being just a position trade.
Even your fundamental analysis needs to be consistent. For me this means I always know what the news is/was and I always know how the market reacted to it, and I consistently side with price. If the German economic number comes in negative, but EURUSD does not react, holds its previous bullish price pattern, and then upticks, I take the buy signal. If Euroland factoryorders are negative and EURUSD is already showing a bearish price pattern and closes below the pivot, I take the sell signal. I’m programmed to only take signals where structure and momentum — i.e. price – are confirming; which is another way of saying I am very consistent in my trade selection.
If you have inconsistancies in your trading method and plan, or recognize them in your decision making process, you need to back up and iron them out, because you are not yet ready to trade live.
Jay
Jnorris@brewerinvestmentgroup.com
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though Trading-U.com see: Trading Course To schedule a complimentary, interactive tutorial with Jay on determining market direction and hear more about “Live Market Exercise” go to One on One Tutorial Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be on bookshelves in 2011
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments. Any charts shown here represent market conditions at a particular point in time. Such conditions may not be replicated in the future. Past performance is not indicative of future results.