
The psychology of trading is on everyone's lips and discipline is
the holy grail of the market participant, whatever market he or she is in. These
things start off as concepts, as they must. However, far too often, they remain
only concepts for the useful lifetime of the person concerned. This is a
problem. They must be made to develop into motivators for decisive action and a real understanding of what it means to think in probabilities.
One exercise that is worth pursuing in this regard is the one that
requires that whenever traders find themselves thinking "what a pity…"
for whatever reason, they take serious time out to examine the situation in
light of the following.
Nobody can foretell the future, and certainly not the future of
the markets. All the profit retention, risk control, trade management and cash
flow measures that the trader puts in place are there to cater for the fact
that the only thing that makes a difference in trading is the ability to think
in probabilities. But if you are truly thinking in probabilities, then, by
definition, no individual trade is of any consequence at all. At Omicron Forex, we only examine individual trades in order to get insights into what might be called trading anatomy, so that we can refine our strategy.
Consider the two short trades in this chart, which took place in
succession. They are in the Aussie dollar against the U.S. dollar (AUDUSD):
Here the trade went into reverse after the first profit level in each
case.
As usual they were under the control of the Omicron Forex Silver Trigger algorithmic trade management routine, which moves the stop loss to Break-Even when the first profit level is reached. Also in each case, the value of the account equity when the first profit was taken was somewhat more than it was after the trades went into reverse and were stopped out at Break- Even. There is no doubt that the trades would have been more profitable if the entire position was taken off at the first profit level. But that is hindsight talking, which is a totally futile exercise.
But by far the most significant thing about this sequence is what it is telling us. It is signalling, loud and clear, that this pair is very likely about to go into reverse. And this is exactly what happened (see next chart, which illustrates a double bottom). So by making good use of our money management techniques we were able to get invaluable information at better than no cost - we made a little money at the same time. Living through such patterns is so much more valuable than just noticing them on the chart after the event.
Now look at the short trade in the next chart. Same instrument, same direction, same time scale:
As usual they were under the control of the Omicron Forex Silver Trigger algorithmic trade management routine, which moves the stop loss to Break-Even when the first profit level is reached. Also in each case, the value of the account equity when the first profit was taken was somewhat more than it was after the trades went into reverse and were stopped out at Break- Even. There is no doubt that the trades would have been more profitable if the entire position was taken off at the first profit level. But that is hindsight talking, which is a totally futile exercise.
But by far the most significant thing about this sequence is what it is telling us. It is signalling, loud and clear, that this pair is very likely about to go into reverse. And this is exactly what happened (see next chart, which illustrates a double bottom). So by making good use of our money management techniques we were able to get invaluable information at better than no cost - we made a little money at the same time. Living through such patterns is so much more valuable than just noticing them on the chart after the event.
Now look at the short trade in the next chart. Same instrument, same direction, same time scale:
Here we have a nice example of where the first profit level is
followed by a much greater further profit. Here, hindsight will tell us, the
first profit level should not have been taken at all.
In the long term, taking the first profit level and moving to break-even
is the only way to go. It covers all the bases. It makes sure that in the event
that a trade reverses thereafter, there will be some degree of profit from it. The price
to be paid for this advantage is the foregoing of the degree of profit that
would have resulted in leaving the whole trade in place when it does go in the
required direction, as above.
This is what probability does for us. The same goes for when an
outright loss occurs. If we have done our homework, this loss will be well
compensated for by the wins. The bottom line is, we cannot tell the future. But
so long as you apply the proper principles over the long run you will, truly,
not care what direction the price goes in.
The feature described above is programmed, as an option that can
be chosen by the user, into the Omicron Forex Silver Trigger routine.
No comments:
Post a Comment