15/12 – Parameters/Rules v Emotions in FX Trading

It seems a fairly muted London Open session, following the Fed rate meeting last night.  I was patiently watching for trend-following and mean reversion setups.  Not a single instrument made it onto my shortlist of “trending” for either the 30-minute or 1-hour timeframes.

In the end I couldn’t quite stop myself and pushed myself to take a long on USDJPY on the basis of the 15-minute timeframe.  Let me tell you about this trade because it was good reminder/lesson for me.

It wasn’t entirely a “valid setup” meaning that it did not meet the parameters I set out for entering a trade under either of my strategies.  Yes, I had technical and fundamental reasons for doing the trade – spending years staring at price screens, that tends to happen.

In any case I took the trade and selected a stop and target, again based on technical reasons.  However my confidence was not as high as it normally is simply because, strictly speaking, it was not a valid setup.

315I thought it was interesting to talk about this trade because initially the trade went a 5-6 pips in my favor (using a 14 pip stop that is already a bit of distance).  However, when price  pulled back around 10-12 pips in the space of ten minutes, I abruptly closed the position telling myself “Well, I shouldn’t really be in this trade anyway” – a thought I would not have if I was trading strictly according to my rules and setup definitions.  Invariably I closed the position within a single pip of the swing low before price rallied to my 20-pip target and then broke the 118 handle and just kept going – see the chart below – and booked a 0.3R loss instead of a 1.5R win.

I think this brings home the message that when trading, it becomes tremendously more difficult if one doesn’t trade within context of rules and parameters, because more often than not the trader’s emotions will just end up working against the trader.  The situation that happened this morning was a great reminder of that for me.

On that note, I will take a half-day for today and head home and catch up on some eating and sleeping, before tackling my last trading session for 2016 tomorrow.

This entry was posted in Psychology, Trend-Following Strategy. Bookmark the permalink.

5 Responses to 15/12 – Parameters/Rules v Emotions in FX Trading

  1. David Eppel says:

    don’t be hard on yourself- do you ever read any of Van Tharp’s stuff? Changed my trading forever. I still say trading is hard on the person and the only reward is money. I’m lucky to have found a trading method that works and with which I am comfortable-well 90% comfortable. I used to do the boredom trades too.

    Liked by 1 person

  2. George,

    Trading outside your plan is indicative of thrill seeking, wanting to feel the rush etc.

    David Eppel, recommended Van tharp, and Dr Tharp would say you need to thrill seek outside of the markets if that is what you crave. ie some kind of hobby that would allow that.
    Seeking that rush inside the markets is expensive.

    It was a bit worrying a few posts ago when you blogged:
    “The days are going by in a haze and I am completely obsessed”.

    That sounded more like a Gambler who has not left the casino tables for days on end, not like a pro trader. Pro trading should be 95% boredom. Or at least a trader should spend that boredom time doing research, or reading or doing psychological work on themselves.

    AA

    Liked by 1 person

    • Thanks for your comment, automateddaytrading – as always, much appreciated! I should possibly be more careful to choose more appropriate words in the blog posts. I do trade in a very structured and disciplined manner, and I’d like to believe that on the whole I approach my trading session in a professional manner. Equally I spend a lot of time in researching, analyzing, reflecting and development – though generally more in batches of focusing on development, and then on live trading. And by ‘obsessed’ I was meaning that I am very often thinking about trading, about what I see in the markets, about trying to understand, and about how I approach trading from a process perspective and how I actually trade. I hope this doesn’t come across as defensive. It’s purely meant for clarification – regardless, I still value the points that you are making and will think about them.

      Liked by 1 person

    • David Eppel says:

      Well said AA-though I think George is mighty brave. I guess you and I have been through all that, and for me that type of situation is a distant memory. As an options trader I get my thrills from the numbers when the market is closed-ok I have other diversions too! For the life of me I cannot see any smarter method than 2 emas on a 5 minute chart for forex, keep the stops loose,never move to break even,you either win or lose. Never trade the news or ONLY trade the news. Next….

      Liked by 1 person

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