You can exercise control and self control when trading, two concepts which will have a tremendous impact on the progress you make as a forex trader. Using the various controls you have to trade will ultimately determine your success. It would be delusional to believe you can control market behaviour, similarly it would be fantasy to imagine that you can always predict market direction correctly. Once you accept these irrefutable facts you can begin to develop a long-term successful strategy.
Entries and exits
A forex trader can control when they
enter a trade and when they exit. They can also choose to stay out of their
chosen markets until the conditions are right, in order to justify entering the
market.
What markets to trade
A trader can choose what markets to
trade and how many securities to trade. Do you decide to trade FX exclusively,
or do you trade equity indices and commodities also? Do you only trade the
major FX pairs? The choices and the control you exercise at this juncture will
be critical to your outcomes. You must avoid over-trading and revenge trading.
Trying to manage too many trades in too many markets can prove to be
disastrous, as can trying to win back your losses by way of revenge trading.
The forex markets do not care if you win or lose, making the process personal
can be extremely damaging.
Risk
You can choose to limit your risk by
way of using stops. The control this offers up is one of the most valuable
tools you have at your disposal. Only risking a small percentage of your
account on each trade can ensure you don’t blow up during your novice,
fledgling, trading education.
Position sizing
You can decide to use the various
position size calculators you’ll see online in order to establish what lot size
you can employ based on the percentage of your account you want to risk on each
individual trade. This free tool, which the majority of honest brokers promote,
provides an exceptional method of control.
The indicators you prefer to use
You can control and choose which and
how many technical indicators you use. This personalisation of your method and
trading strategy offers up the ability to construct a plan and control how you
communicate with the market in a highly personalised manner, providing you with
a significant level of control.
You can control your emotions
Controlling you emotions and ensuring
you stick to your trading plan is one of the most essential factors to ensure
you’re giving yourself every chance of success. You must introduce elements of
automation to many aspects of your trading. The basic forms of automation such
as stops, limits and automated entries will deliver you elements of control.
You can control you loss per day and
apply a circuit-breaker
You should set yourself a daily loss
and if you reach the loss you should stop trading immediately. If you
theoretically lose 0.5% on a series of four trades, your self-imposed daily
loss limit is 2% and you reach it, then you know you’ll still be able to trade
the next day. Similarly, if you have perhaps three losing days in series then
the total loss of 6% will hurt, but it won’t irrevocably ruin your chances of
becoming a successful trader. You have two options if the 6% drawdown is
reached; you could simply continue with your current strategy after you decide
that the market is temporarily not in tune with your method. Alternatively you
could use the hypothetical 6% loss to radically alter your method and strategy.
You can control your trading by
stopping trading
You can’t lose if you don’t trade. The
ultimate control you have is to exercise self-discipline and decide not to
trade. You can decide not to take a trade because it doesn’t comply with your
plan. You can opt out of a trading session because a calendar event may cause
exceptional volatility. You can also take a vacation from the market after
incurring losses, go back to demo, perfect your method and strategy and come
back to the profession refreshed and reenergised.
