“Psychology is, quite possibly, the most important thing” – Tom Basso
On Retail Trading
The obvious “cure” to the difficulties listed above might appear to be “discipline“. It’s true that discipline, in various forms, is one of the common traits found in all successful traders that I’ve met over the years. But I’ve also seen discipline “castrate” traders. So more than discipline alone, we might want to speak about “personal balance“.
Here are the differences between balance and discipline:
- traders that get caught in the notion of discipline will keep very detailed journals and checklists to monitor every wiggle in the market, hence getting “too close” to the market and missing the forest for the trees;
- traders that get caught in the notion of discipline will most likely also keep detailed journals of their own habits and routines, essentially becoming so self conscious that they are no longer in sync with the market;
- traders that lack personal balance will seek a disciplined way to trade the way they “believe” is best for them. One common error is attempting to trade around a day job by pursuing short-term trading without properly assessing whether there are actually any opportunities that legitimately exist during those particular times;
- traders that lack personal balance will contaminate a good trading plan with their own behavioural traits: being overly cautious (finding excuses for not taking trades), being a gambler at heart (finding too many excuses to take trades), being emotionally unstable (trading impulsively);
- traders that lack personal balance will also have a skewed relationship with money: with being too attached to money, your emotional swings will depend on your p&l swings; with being too detached from money, you will fail to appreciate nuances in the market and be reckless with your risk taking.
Maintain Your Edge
Once you have a good personal balance, you will be able to objectively view the markets and exploit recurring patterns – whatever they may be. That’s where edges lie and there’s nothing overly complex with finding an edge in the markets: observe, study and test recurring patterns.
Whether you find an affinity for breakout/pullback patterns within a trending phase, volatility breakouts, or anything else, just remember to be objective and well balanced when deploying your bets. Once again let’s recap the ingredients for staying afloat and building a track record that will then allow you to access bigger & better things?
- Recognizing when trending phases are either temporarily or permanently exhausting.
- Determining when to stand aside & allow the price action to offer more concrete information before stepping in.
- Identifying when a pair or currency is experiencing a volatility contraction or expansion
- Remaining in touch with market drivers
Over to You
About the Author
Justin Paolini is a Forex trader and member of the team at www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.