As I was sending out fx trade alerts to our clients on Thursday morning May 26th, I was informing everybody about the sell (short) position I was taking in the USDJPY @ 81:39 @ 8:30a PT (see 15min. chart). My profit objective and plan was for prices to fall to 81.25. If the idea went bad I would have exited the trade at 81.53 for a loss. During the first 30 minutes of the trade price action was grinding slowly and moving slightly against my initial entry spot. I informed everybody during this time my thoughts about what the idea had going for it and what it had going against it. As I entered the trade I had 4 of the 5 rules I use met to place the idea, which is a firm majority in my book. Worth doing! Of course I would love 5 out of 5 but life isn’t built on a bunch of perfect.
As price action moved slightly against my intended path up to 81.46ask (still below my stop loss at 81.53), I mentioned to my audience what I still had going for the idea. Along the way I lost 1 of my rules leaving me with 3 out of 5 (still a majority) so I posted that I am hanging with the idea. A client responded back “ugh – especially at this time of the morning”. I replied; “I can’t control the speed and can’t control the outcome; its like flying in a plane now “USDJPY Air”…you just hope the pilot is going to take you to where you want to go!.” In this case it was 81.25 (my vacation spot so to speak and in this particular instance a 14 pip profit). She responded back and seemed to relax a bit based on her next comment; ” I like that a lot!! USDJPY Air – next to your football analogies, that is wonderful!! Thank u, made me smile & look at it from yet another good angle!! ”
I mention this because as you may have heard me say in previous articles that trading and flying have some similarities. When you board a plane to travel to that vacation spot, there are some certainties such as what airline you are flying and what time you should arrive at the airport. Exact departure and arrival times however are rarely perfect. We of course assume we will arrive safely and fairly close to the expected arrival time, but remember that those are assumptions. You need to be a bit flexible when flying and of course when venturing into the trading arena as it is not a business of absolutes. During the flight your baggage may have shifted a bit during take-off and some unexpected turbulence may appear at any moment so keep you seat-belt fastened at all times while seated Sounds familiar to trading, right?
I arrived to my trading airport on time at 6:15a PT and waited 2 hours and 15 minutes before I took-off on USDJPY Air at 8:30a PT. When traveling the friendly FX-Skies or any trading sky-way for that matter, you just don’t know for sure how long. With experience you will begin to get a feel just as you do when you travel on a plane, but in the trading world you need to be ready as trades can last minutes or hours and for some days.
During the flight of this trade price action was moving extremely slow due mainly to the time of day and the fact that no economic reports were expected. 30 minutes into this trade-flight, however, I was feeling some turbulence (the trade going against me) and I had thoughts that I might end up in Cleveland (no offense) but I wanted to land in Hawaii . Turned out to be normal and not that bad as the trade eventually arrived at my vacation destination (81.25). We hit the profit target but arrived in 2 hours and 15min. Its funny how the market told us that based upon our original wait time. If you have to wait 2 hours to get the price you want, you might begin to assume that it may take 2 hours to arrive at your objective. Breath! We live in an instant gratification world and I know you think you deserve to get paid in seconds, but “it ain’t gonna happen they way you draw it up all of the time.” In my case the trade-flight had 2 hours of waiting time and 2 hours of flight time before it arrived. Through years of experiencing this pattern over and over again, it taught me to adjust to the rhythm rather than head-butt with it. Seeing time and price working in tandem stopped the internal chatter in my head and helped me enjoy the trade-flight no matter what the outcome . All said and done I arrived in one piece with a nice smooth landing. Aaahhh!.
Now this scenario worked out this time. The problem for most comes in when a trade turns bad. Those of you struggling seem to forget or more accurately ignore the fact that you can parachute out of a bad idea with little damage . On a commercial plane you do not have that luxury When a 5, 4 or 3 rule out of 5 rule majority turns into only 2, 1 or none (strike 1, 2, 3) during the flight, out comes my parachute without hesitation. The market always gives you due warning. The clock is ticking; have you checked your waiting time and arrival time estimate? If the trade-flight isn’t at your destination and you have been up in the air the same amount as your waiting time, the red flag should begin to start waving in your head.
During the journey of any trading-flight you can sometimes switch to another flight (market) or stay on the same flight and bring a friend with you (add more contracts to the idea if it feels safe). Just make sure that you have a parachute for yourself and any friends you may have brought along for the ride (risk management! risk management! risk management! )
How you interpret your rules (no matter what they are) and how you act while using them is extremely important. Here is how I look at rules. The actual rules have been put in place for a reason so they are all equally important. The key is how you execute and in my opinion how many rules you have. Having an odd number of rules is vital in any trading strategy or philosophy. This way you can always settle an argument in your head because you ensure a majority. One rule isn’t enough as it is closed minded. 3 rules gives a nice perspective but most times 3 dismisses key pieces of information. 5 rules is perfect as draws from enough experience to give a solid opinion about the idea. More than 5 means that there are to many chiefs in the kitchen and it leads to over analysis paralysis.
When navigating the markets just remember to have a system of checks and balances that solves all arguments in your head. As the internal chatter grows silent, you begin to use your parachute more readily and without hesitation. This ensures survival during times when your go into a slump. It happens to us all. How you work your way out of a slump depends on how readily you pull the rip-chord. Two-thirds of you fail because you never take your parachute out of the plastic bag!
Whatever you decide to try; you can’t win, if you don’t play!! Prosperity is at your fingertips! All you have to do is grab it!!
Trading Commodity Futures and Foreign Currency (Forex) contracts may not be suitable for all investors. You may lose a substantial amount of money in a very short period of time. The amount you may lose is potentially unlimited and can exceed the amount you originally deposit with your FCM. The material on this website is intended for educational purposes only.
© 2011 RDS Trader, LLC.
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