Thursday, April 24, 2014

A reading recommendation from OmiCronFX | Peace of mind and Forex trading

Most of what is needed for the successful trading of Foreign Exchange will be found on the OmiCronFX website, in our books, in the commentary that we publish each weekday morning, and in the patterns of operation of our algorithmic routines. This material represents the accumulation of knowledge and experience over a considerable period of time. Much of it comes from what might be called “screen-time”, whether that is spent actually trading, in research or in the development of the software.

There are other influencers, however. Most of these take the form of books. While many are directly related to Forex, general trading, economics or similar, some of them are not. One of the most important of these is “Zen and the Art of Motorcycle Maintenance”, by Robert M. Pirsig.

Your blogger first read the book just after it was written, in 1974. It had a profound effect then, but was appreciated to an even greater extent when it was re-absorbed on the occasion of its 25th anniversary, a few years ago. Now it is being read again.

Pirsig’s book exists on three levels. It is a treatise on doing things right, without the stresses that perfectionism often gives rise to, it is an account of mental disorder of the kind that can be brought about by a split personality, otherwise often described as schizophrenia, and it is a straightforward, well-written tale of a motorcycle trip through the American Mid-West.

Peace of mind and Forex trading

The book’s relevance to Forex trading can be summed up in one anecdote by the narrator, who is by profession the writer of technical manuals. He tells his audience of friends, but including his son, that he held on to a manual he had received many years previously that began with the sentence: “Assembly of Japanese bicycle require great peace of mind”. He did this because he realised that this sentence got to the very core of any instruction on how to do anything - worries and stress were always going to be built into whatever it was the person concerned was trying to achieve, while being able to operate with tranquility and ease would have the beneficial opposite effect.

If anything is needed for successful Forex trading, it is this same great peace of mind. Aspiring traders have often been told this, or similar, so readers are probably nodding at this stage. But the exhortation goes far beyond the obvious requirements of making sure that you are in harmony with the people with whom you live and work and that you have dealt with all potential sources of worry in your personal life. 

Of particular importance is the requirement that peace of mind extends to the very trading that you carry out. This means only taking on positions that conform with the need to have probability on your side, which also means that you must think in terms of numbers of trades, but without over-trading; it means locking in profits as a matter of principle, even though this may happen on occasion too early in the trade – remember that you will be dealing with numbers of trades so the ones that disappoint will be more than offset by the ones that turn around and go in the other direction soon after the profit was taken; it means diversification in Forex pairs; it means taking on position sizes that are safe and manageable; it means using Stop Loss orders as a safety net; it means ruthlessly cutting, which will also mean taking, losses when the criteria for profit no longer exist according to your strategy; and it means extensive research into the fundamentals and the careful study of price action, among many other things.

It should hardly need saying that it also means actually having a strategy, and sticking to it. In the case of OmiCronFX, essential elements of the strategy are built into the algorithmic “power tools” that we use. And this is the real strength of our algorithmic routines. They are not robots, that can be switched on and left unattended - such solutions will never exist. However, they do a great job in ensuring that the correct discipline is maintained so that the strategy is followed. Computers and software simply do not experience, and therefore cannot react to, the emotions of fear, greed, elation and disappointment that play havoc with so many trading accounts.

A full reading of “Zen and the Art of Motorcycle Maintenance” is also recommended. As already noted, it is a celebration of taking the time to ensure that you get into the rhythm of whatever it is you are doing, and by this means do it right.

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