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Volatility has been picking up these days so you need to consider making the necessary adjustments to catch shorter-term price moves. How can you stay consistently profitable in ever-changing market conditions?
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Index • How To Adjust To Changing Trading Conditions • 1. Trade- Specific Level • 2. Macro Level
How To Adjust To Changing Trading Conditions • Market volatility has been picking up lately and as a result you may need to consider making the necessary adjustments to catch shorter-term price moves. • As traders, we need to adapt, as staying profitable in the long-run requires that you are able to adapt to random market conditions.
I have written several times about “high probability trades” understanding how to identify them. • High probability trading is one of my keys to success as being a trader.
This is one of the few times I will use the word casino, or references to casinos on any page inside my blog or associate pages. • As you know, I consider Forex Trading RISK MANAGEMENT, as traders we are RISK ASSESSORS not gamblers.
However, just like a casino, traders are in the business of trying to be consistent and making money in a seemingly random work environment. • The key is to think in terms of probabilities. • This is actually a little easier said than done, because it requires two layers of belief that you would initially think cannot coexist.
1.Trade- Specific Level • At this stage, you have to understand and accept the uncertainty and unpredictability of each trade. • Let me return to the casino for a moment and talk about Blackjack. • As you know, you never know what cards you will be dealt, nor do you know how each player will play his or her own hand. • These factors have a direct effect on the outcome of your hand.
Yet, there are some who make money-playing blackjack because they understand that each hand is STATISTICALLY INDEPENDENT of every other hand and that over time. • If they follow basic strategy, they can decrease the house edge and actually generate a small profit.
The same can be true in trading. • We have to understand that each trade is independent of every other trade. • Whether your previous 10 trades were losing or profitable trades this has no bearing on the outcome of your next trade. • Once you can accept this, you can easily take trades without being adversely affected.
2. Macro Level • You have to understand that over time and with a large enough sample size, the probability of profit or loss is relatively certain and predictable. • This degree of certainly based on the constant variables that are known in advance and most importantly, within your control.
“Once you recognize the independence of each trade and believe in letting good odds (probabilities) play themselves out, then you will have an easier time at removing emotions from your trades”. • (In my opinion, the above in BOLD is one of the KEY factors in becoming a longer-term consistent Forex Trader)
For example, you’re less likely to exit a trade early if you know that your trade idea has a good probability of being profitable in the first place. • Similarly, you’re less likely to lose sleep over the outcome of each trade if you know that given enough sample size, your trading method will most likely work our in your favour.
However, before you place too much confidence in your trading method, you must first make sure that it has an edge over the markets. • Without an edge, you are just like any random fool who walks into a casino; you may win once in a while, but over time, the casino will win because they have the edge over you.
How do you get “AN EDGE?” – fine tuning, trade set-ups, entry and exit disciplines, look at all the trading styles you can find and demo them until you have your EDGE. • This all leads back to the TRADING PLAN….. the document that I believe every trader should have. • It contains everything that makes you the trader you are.
The bottom line is very straight forward, consistently profitable traders do NOT rely on luck. • They simply rely on the fact and knowledge that their system works because they have put in the necessary efforts to make it work.
