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Visualize. Go over in your mind what a good trade feels like from start to finish… A trade signal flashes on the screen. A smile comes across your face. The game is on and the fun begins. You know the worse thing that can happen is a tiny loss. You know taking tiny losses is inevitable and a necessary component of your successful trading strategy that is consistently making you money. You confidently enter the stop loss entry, if done stop loss and if done take profit as one trade entry on your broker platform. You don’t enter the stop loss entry first and then enter the if done orders because that will cause you stress and take you out of your game. You know staying relaxed and confident means avoiding anything uncertainty. By entering all three components as one trade limits your risk immediately and therefore you can remain “cool as a cucumber”. You have been practicing entering orders and know you can do it quickly and correctly. Your not thinking about winning or losing on the trade, your not thinking what could happen if you enter the trade wrong, your only focusing on the task at hand – entering the complete order accurately and in a timely fashion.
Once you have entered the complete trade and double-checked it you’re your thinking about when it is likely the next message flashed on the screen will come and what action will be required of you. The trade has gone 20 points your way and you know it’s coming – take half profit. It flashes on your screen “take half profit”. You’re smiling. You’re smart. You knew it was coming. You confidently enter a market order to reduce your position by half. You don’t care about the rate. It’s like using a hand grenade or playing horseshoes, close is good, gets the job done. You reduced your position by half and locked in some profit. You checked your remaining existing order to make sure it now reflects the trade you did correctly. It does. You’re order is now for half of what it was before you closed half. All good.
You know it’s coming if it’s not there already. There it is on your screen. Move stop on remaining half to breakeven. This feels good. You know you don’t need to rush or get stressed adjusting your stop to your original entry level; market is about 20 points below that anyway. You glance at the current rate and see it’s still about 20 points below your entry level. Calmly you adjust your stop. No worries, no rush. Life is good. You double check to make sure you adjusted the stop correctly. You did.
Your anticipating Jimmy’s next message. If the market starts going back up Jimmy is going to flash “close position”. You’re ready. You know the fill will be relatively ugly. Doesn’t matter. You got 20 points on half the position and worse case on the remaining half is breakeven. You got your stop in at breakeven. There is nothing to stress about.
Market stops to drop and it’s 35 points from your entry level. You’re watching the screen. You know jimmy’s going to take profit and close the position or move the stop to protect profits. There it is, “move stop to 85”. That’s still 20 points above the current market. Easy peasy. You effortlessly adjust the stop with two mouse clicks. The market is still falling, now 50 points profit. You click on market order and close your position. You look up at the screen and there it is. A message from Jimmy “close trade”. You feel good about yourself. You took action before the fact. Worse case was you locked in 50 points profit. You’re in the zone. Acting independently but smartly, not emotionally. You double check to see you have no position and your profit looks correct. It is. Mission accomplished. You think about making a cup of herbal tea as a reward for your fine performance.
Market continues to drop. The idea you could have made another 20 points never crosses your mind. You have better things to do with you’re time than thinking about what could have been. You not anticipating Jimmy doing anything right now. You know he will wait until the market stabilizes, goes up somewhat and generates a fresh sell signal. You ask yourself, “what did Jimmy see that caused him to sell?”. You know he looks at 1 minute, 5 minute, and 30 minute charts to pinpoint entry levels. You go back to the charts and see what they looked like when Jimmy sent the stop loss entry order. What was he anticipating? What was the trigger level? Why there?. Ok. New low for the day. That’s cool, makes sense. But what else. Where was Swiss at the time. Oh, I see, Swiss was already a lot higher. And Sterling was already above short-term trend line. Look at USDCAD it had already spiked higher. How about USDJPY. How about not, that currency is totally out of wack due to intervention. How about EURJPY. Hmmm. Breaking trendline to downside. Cool. Will help EURUSD go lower and that suits our short EURUSD trade. How about EURGBP. Also breaking lower. Also supports a lower EURUSD trade. EURCHF is a lot higher that’s not good. Or is it. Could be
The reason it’s higher is because traders are buying USD and reaching to higher levels to buy USDCHF. That would suits our short EUR long USD short position. Now I get it. All the ducks were lined up in favor of EURO lower and USD higher. That’s why Jimmy sold EURUSD when it too made a new low, confirming it was ready to join the others and gain ground against the USD.
This is the first in a series of articles on the inner game of trading. Psychology plays a major role in trading success. I spent an hour a week in one on one session for a long time with a professional psychologist. I want to pass on the valuable insight this individual taught me.
If you’re interested in doing some further research on your own I suggest the following books. I have read these books and found them helpful:
- Zen in the Markets  http://www.samuraitrader.com underlying message is your in contest with yourself and not the markets.
- The Disciplined Trader Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude by Mark Douglas
- Trading in the Zone by Ari Kiev
- Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life by Nassim Nicholas Taleb
Here is a link to many other trading psychology books:
http://www.daytradingworld.com/trading_psychology_books.html
Here are some website addresses I have look at for free reading:
http://www.adest.com.au/links/psychess.htm
http://www.drrelax.com/Tezine1.htm
http://www.incrediblecharts.com/technical/trading_psychology.htm
http://www.advancedfutures.com/cbot/3.asp
http://www.trading-tips-and-tricks.com/trading_psychology.html
http://www.turtletrader.com/know.html
Note:
Jimmy Young is a seasoned institutional forex trader having 20 years of experience with different banks. He headed up bank FX dealing rooms. He is FX profitability consultant to major European private bank. He manages funds and also trades personal money. Between 1981 and 2004 he was a foreign exchange trader at following banks: Societe Generale, Julius Baer, Fuji Bank, Indosuez, Erste, Hill Samuel, Manufactures Hanover, Paribas, European American. www.EurUsdTrader.com