Keep your head from ruining perfectly good trades
January 23, 2007
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John Forman - The Essentials of Trading author
I was recently responding to a post on one of the discussion forums I frequent that I thought would be worth talking about here in more detail. The poster was having problems with his trading. He trades forex and employs a strategy whereby he does analysis before the European market open, puts on a trade, then goes to sleep. He then will be awake and a more active and involved trader during the New York morning. The problem he is having is that while his sleeping trades are doing well, his waking ones are not.
This is actually something I can relate to quite easily. You see I have often found myself that my best trades are ones that I put on and basically walk away from. I’ve nailed markets nearly to the point or pip in that way. I’m a firm believer that a lot of the reason for my increased success in that fashion of trading - and why I tend to focus on part-time trading rather than full-time - is because it keeps me from over-analyzing things.
I am a good market analyst, if I may be so bold as to say so. I’ve been doing it for a long time across a lot of different markets (technical, mostly) and was paid well to provide that analysis to portfolio managers and institutional traders around the world. In all honesty, I think that it’s something I just do naturally, and not just in terms of the market. I analyze everything! That’s not always good, though.
Constant analysis can be a killer in your trading. Think about all the information that comes to you during the course of holding one single trade. If you analyze every little bit of that, it will bog you down in what is mostly noise. By stepping away from the market and only looking at it when you need to, you can avoid getting caught up in the normal back and forth and stay focused on only what is significant for my trading and/or position(s).
The question, though, becomes when to walk away and how long to stay away. That depends on your timeframe - how long you expect to have the position on, or until something sigificant happens.
For example, in much of my trading I have a pretty good idea that the move I am looking to happen will take place in 6-8 periods. What that period is depends on the chart I’m looking at. If I’m trading off the hourly chart, then it’s 6-8 hours. If weekly, then 6-8 weeks.
Now that’s not to say I just walk away for that whole time (though sometimes I do just that). I might check back periodically to see what’s going on. I mean I do want to know if my stop or target has been hit and the trade exited. The key, though, is to not analyze the markets on your little checks. That will keep you from driving yourself crazy.
Here are some other posts which might interest you:
[…] Keep your head from ruining perfectly good trades Trading & Investing Essentials Constant analysis can be a killer in your trading. Think about all the information that comes to you during the course of holding one single trade. If you analyze every little bit of that, it will bog you down in what is mostly noise. […]
[…] Keep your head from ruining perfectly good trades Trading & Investing Essentials Constant analysis can be a killer in your trading. Think about all the information that comes to you during the course of holding one single trade. If you analyze every little bit of that, it will bog you down in what is mostly noise. […]