Lost Nails and Little Details
Wednesday, April 21st, 2010 Your Mental Game by TraderCisco
Forex trading has been great fun, a business that has taught me many things about myself and how to enforce discipline. Trading forex is also about recognizing mistakes and how to make adjustments. I’ve been trading price action for some time now and when it comes to the forex market a nursery rhyme has helped me keep on track with my day trading.
For want of a nail the shoe was lost. For want of a shoe the horse was lost. For want of a horse the rider was lost. For want of a rider the battle was lost. For want of a battle the kingdom was lost. And all for the want of a horseshoe nail.
Lost nails and little details…
Without question we have all seen the consequences of how a small event can have such a large effect on the outcome.
What really inspired me to write this was a forex trade that I took a loss on sometime ago. The lesson stuck with me, and tho I would most likely repeat the mistake, my hope is that the little rhyme will play over and over in my head so that I limit my mistakes when trading forex.
So what happened? Well I took for granted how important to have my stop where it should be.
Forex trading can be a brutal master but when we are confronted with its punishment, how will we respond? Not so long ago I found a beautiful long setup entry on the AudJpy, it was a long term swing trade with the only downside being that the resistance for the trade was right at 100 pips. I am comfortable with larger stops on a swing if the trade will provide the proper ratio of return, and so, I entered the trade and placed my stop 100 + pips away enough for the broker spread and resistance. However…..
I learned a long time ago that your forex trading stop should always include support or resistance, broker spread, and an undefined ‘fudge’ factor that allows for the little tests that come along the way. What occurred on this trade was I got a little chippy. Somehow someway, my mind told me, “hey, you are a long way on this stop already, 100+ pips is plenty, no need for the ‘fudge factor’ this trade will NEVER come all the way down here”.
Well…. as you can already expect. The pair went 3 pips past my stop, turned tail and ran like a scalded dog, well past my 1 to 1 ratio and closer to the 2 to 1 ratio I wanted.
Lost nails and little details….. How dare I get chippy with a stop, whether 10 pips or 100. Those little details took me from a payout of lets say for giggles of 4% to a loss of 2%. That is a 6% swing for 3 pips… Lost nails and little details….. When you continue to make mistakes like this, imagine the loss of your account, imagine how the little details can keep your account from turning into what you desire.
So what do we do, well we plan properly and accordingly and follow our rules regardless of the circumstances. When the little details are not allowed to fall to the wayside, we go from failed traders to successes, all because of one little nail.
TraderCisco