In this part, I am going to share the fundamental part of my strategy, in which I do believe that a good trader must have a perfect balance between the technical and fundamental department.Technically speaking, considering you have a gun in your hand, anyone can say that you have to pull the trigger in order to kill your enemy but pulling the trigger itself will not guarantee you a good shot. You need to combine the shot with good fundamental skills in which aiming and timing play its important roles.
Ok, say you have all the best money management strategy and trading system that proves to be a winner 90% of the time from back testing. Will you have the guts to use it blindly in the real market? If you ask me, definitely the answer is NO.
Why? Because most of the time, what is proven to be profitable in the past would not guarantee you any future returns. Still, you have to face the market on your own with all the skills and experience that you have and emotional swings that could disturb your trading decision every now and then.
The point is, at times, you have to emphatize the market by looking at what is happening around you. The daily and weekly charts itself are telling you a million words about the crowd's main behavior. The news, the sentiments and the geo-political instability would add another potential emotional swing in the way the market would behave.
Just bear in mind that 60% of the time the market will range, 30% trending and 10% breaking outs. Our simple job as day trader is to analyse these movements and classify their behaviors accordingly. If we were to expect a breakout on daily basis, the results would be a continuous dissapointment as market do not breakout very often. Most of the time (60%) the price will normally stay within an established range. But when it happens, anything is possible. Remember on last 24th Oct 2008 when GBP/JPY moved over 2000 pips in a single day? Check it out...
Hence, the point of using reverse psychology here is especially useful when you already have an open position, regardless of real or demo account.
The technique is pretty simple. Whether you realize or not, most of the time, our emotional response to price movements are mainly due to whether
- it is moving in our favor, or
- it is moving against us...
I'm not sure about you, but I personally wouldn't care what happens in the market when I do not have any open position floating around.
So the key here, regardless of whether you are in profit or loss, apart from all the technical tools that you may have, you must stand back, looking at the plain candlesticks on your other demo accounts, and be franked with what you see is happening like a third party to the trading world.
- Is your Profit Limit realistic?
- Will the price go there?
- Is your Stop Loss too far or too close?
- From the current behavior, will it ever touch your stop loss?
- Are you going to leave things to chances?
- If I were the crowd (I am indeed), what would I do?
- Am I with them or clearly against them?
- Where are the pivot, supports, resistances and key fibonacci levels?
You need to ask all these to yourself and be franked with your answers. When most of the answers are seems going against your open position, the best is to close it and come back later. But if the answers are with you, you should take a chance by holding on to the position. Breaking even your stop loss would be the safest options to any winning positions that you intend to ride.
To me or any trader, we enter a trade because we believe we can make money. But then, when a position is seems wrong and going against us at fast rate, it definitely tells us a message that we shouldn't stay around.
But do not panic unnecessarily. Stay cool and realistic. Just reassess the market and make a a wise decision.
Sticking to your system mechanically and rigidly could be good. But the way I see it, you need to be flexible from times to times, not bending the rules especially when we talk about profit taking. The reason is there are just too many instances when it is less then 10 pips to your TP and the market reverse, as if it knows that your TP is there. So, say your TP is 100 and it is already 92 in profits and seems going no further, I would advise you to take it and stay out for a while.
It feels much better taking the +92 pips and later see the price jumps to +150 pips in your way (oh no! I should have stayed) rather than seeing it coming back to +20 pips or minus against you (sh**! I should have take it when I had the chance).
I've done it before and I feel more regret about not taking it rather than seeing it go beyond my profit limit levels.
Well, it is up to you actually. If you feel confident that the trade is in your favor, by all means do what you believe is correct. But don't forget that you can never make all your money in one trade, so there is no point on holding a winning or losing position too long. Just get out and come back, simple rules that always work.
The way I look at it is pretty simple. Regardless of what techniques that you are using, as long as you make money consistently, you are good. I don't believe Mr Soros is playing by the rules all the time... ;)
Ok then. Good luck in your trading this week...
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