Month 3, Day 47 - 36-month forex trading challenge - trading with fear.
Today my two sons start a new school. At ages 7 and 6 they're naturally scared, but I've tried to explain to them that fear is a normal, and usually a good clue that you're making a change for the better.
In yesterday's blog post I talked a little about fear, and how one of the biggest battles in trading is not letting fear control you. It's an ongoing battle and without a robust trading plan that tells you what to do and when to do it, fear along with its close relatives, hope and greed, can quite easily become your master.
Don't get me wrong, fear is an extremely important emotion I wouldn't want to be without. It's powerful and primitive, and designed to get us out of trouble with its fight-or-flight response. In a life-threatening situation fear is exactly what we need to sharpen our senses in order to preserve our survival, but in everyday life it can stop us taking calculated risks that would actually benefit us. It can also encourage us to make knee-jerk reactions to perceived threats that in reality are not threats at all.
Welcome to the world of trading!
The business of trading necessitates the taking of calculated risks. To make money you have to risk money in the first place. What's more, you have to be comfortable with this risk and the possibility you could lose your initial stake.
As a trader it's highly unlikely you'll enter any given trade at the market turn. What's more likely is that your trade will go against you initially – you'll take some 'heat', as I like to call it.
The problem is, this heat can induce fear – the fear of losing, the fear of being wrong, the fear of making a mistake.
Providing you haven't risked the whole of your account balance on one trade, any individual trade is not a life-threatening one. While fear might be encouraging you to take action, there could very well be nothing to do.
The initial heat, is sometimes the market's way of testing your commitment to your position, and if you buy or sell on momentum (as I generally do), some initial heat is to be expected. This is often due to short-term profit taking by traders on lower time frames.
Yesterday on the 2pm close I added a third position to my NZDUSD (T32S) short. My rules state that I can add up to three 2% positions in any trade, but that my overall risk must remain at 2% or below. This means that to add my third position, positions one and two must be in profit, which they were.
I was slightly hesitant about entering this final position given the 3-year low (black line) looming underneath my entry. A 10-year low would have negated my entry, but a 3-year low I'm less concerned about.
Overnight price fell away from the top of the daily trend line and for a while at least traded under the low. More positive news out of Australia in part probably explains the bids challenging this pair's descent (AUD and NZD are often linked), and the 6am candle closed almost exactly to the pip at the 3-year low.
Price is now trading up on bids and the fear is kicking in – is this the end of the move, is the market reversing, should I take profit and get out?
The answer to these thoughts racing through my head, is that nobody knows. Any trade is simply a best guess. As far as I know, no one has a crystal ball in the currency markets, or any market for that matter.
My rules are clear. In this trade I will exit 1/3 of my position if the 10 EMA crosses and closes above the 30 EMA. At the moment price is contained underneath the 10 EMA and a cross is some way off – there's nothing to do, but to relax, watch and wait.
A winning trade needs room to breathe, and to push down through the 3-year low and stay there, offers may need to be built on a retracement.
One thing I don't have a fear of anymore is cutting losses, and in the last 24 hours I've had to put my money where my mouth is to back this lack of fear up. I've now closed positions in full in EURGBP (T33S) and GBPCHF (T6L).
EURGBP (T33S) >
Unable to exit last night, I did so on the 6am candle close. My subsequent loss on this trade was halved, as price continued up to hit my initial stop.
GBPCHF (T6L) >
It's a similar story on this pair – a smaller loss than the 2% I would have incurred when my initial stop loss was hit.
Both these GBP long losses have been hedged in part by my GBPJPY(T35S) short, which I entered on yesterday's 10am close (see below).
Much of the GBP activity is hinged on the prospect, or not, of a no-deal Brexit. I still trade GBP pairs as the volatility can create opportunities, but am conscious that whipsaw action is highly likely.
So that's it for today. It's not long until the 10am close now and I need to get prepared. If an opportunity shows up in line with my entry and risk management rules, I won't be scared to take it.
Trading with fear is just part of the game!
Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
Read my blog here: https://stgforextvforexchallenge.blogspot.com
Subscribe on YouTube here: https://www.youtube.com/channel/UCyGySJ5IeDjq-DIJPU7nYvw
[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]
In yesterday's blog post I talked a little about fear, and how one of the biggest battles in trading is not letting fear control you. It's an ongoing battle and without a robust trading plan that tells you what to do and when to do it, fear along with its close relatives, hope and greed, can quite easily become your master.
Don't get me wrong, fear is an extremely important emotion I wouldn't want to be without. It's powerful and primitive, and designed to get us out of trouble with its fight-or-flight response. In a life-threatening situation fear is exactly what we need to sharpen our senses in order to preserve our survival, but in everyday life it can stop us taking calculated risks that would actually benefit us. It can also encourage us to make knee-jerk reactions to perceived threats that in reality are not threats at all.
Welcome to the world of trading!
The business of trading necessitates the taking of calculated risks. To make money you have to risk money in the first place. What's more, you have to be comfortable with this risk and the possibility you could lose your initial stake.
As a trader it's highly unlikely you'll enter any given trade at the market turn. What's more likely is that your trade will go against you initially – you'll take some 'heat', as I like to call it.
The problem is, this heat can induce fear – the fear of losing, the fear of being wrong, the fear of making a mistake.
Providing you haven't risked the whole of your account balance on one trade, any individual trade is not a life-threatening one. While fear might be encouraging you to take action, there could very well be nothing to do.
The initial heat, is sometimes the market's way of testing your commitment to your position, and if you buy or sell on momentum (as I generally do), some initial heat is to be expected. This is often due to short-term profit taking by traders on lower time frames.
I was slightly hesitant about entering this final position given the 3-year low (black line) looming underneath my entry. A 10-year low would have negated my entry, but a 3-year low I'm less concerned about.
Overnight price fell away from the top of the daily trend line and for a while at least traded under the low. More positive news out of Australia in part probably explains the bids challenging this pair's descent (AUD and NZD are often linked), and the 6am candle closed almost exactly to the pip at the 3-year low.
Price is now trading up on bids and the fear is kicking in – is this the end of the move, is the market reversing, should I take profit and get out?
The answer to these thoughts racing through my head, is that nobody knows. Any trade is simply a best guess. As far as I know, no one has a crystal ball in the currency markets, or any market for that matter.
My rules are clear. In this trade I will exit 1/3 of my position if the 10 EMA crosses and closes above the 30 EMA. At the moment price is contained underneath the 10 EMA and a cross is some way off – there's nothing to do, but to relax, watch and wait.
A winning trade needs room to breathe, and to push down through the 3-year low and stay there, offers may need to be built on a retracement.
One thing I don't have a fear of anymore is cutting losses, and in the last 24 hours I've had to put my money where my mouth is to back this lack of fear up. I've now closed positions in full in EURGBP (T33S) and GBPCHF (T6L).
EURGBP (T33S) >
GBPCHF (T6L) >
Both these GBP long losses have been hedged in part by my GBPJPY(T35S) short, which I entered on yesterday's 10am close (see below).
So that's it for today. It's not long until the 10am close now and I need to get prepared. If an opportunity shows up in line with my entry and risk management rules, I won't be scared to take it.
Trading with fear is just part of the game!
*********
Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
Read my blog here: https://stgforextvforexchallenge.blogspot.com
Subscribe on YouTube here: https://www.youtube.com/channel/UCyGySJ5IeDjq-DIJPU7nYvw
[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]
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