I’ve said it before and I’ll say it again because this is one of those very important concepts, and that is the idea that currency trading isn’t about making money, it’s about not losing money. Remember what Warren Buffett said, “There are two rules for trading: Rule #1- never lose money. Rule #2 – remember rule #1.” People who are well-to-do, I have observed, seem to share the same behavioral characteristic of being very particular about getting value for their hard-earned dollar, and not being too eager to jump into questionable investments.
They want (and expect) a reasonable return on their investment risk, and likewise, we as Forex traders should be following that example. I have a favorite anecdote about not needlessly parting with one’s coinage: a man walks into a New York City bank and says he wants to borrow $2000 for three weeks. The loan officer asks him what kind of collateral he has. The man says “I’ve got a Rolls-Royce, you can keep it until the loan is paid off. Here are the keys.” The loan officer promptly has the car driven into the bank’s private underground parking lot for safekeeping, and gives the man $2000. Three weeks later the man returns to the bank, pays back to $2000 loan, plus $10 interest, and regains possession of his Rolls-Royce. The loan officer asks him, “Sir, if I may ask, why would a man who drives a Rolls-Royce need to borrow $2000?” The man answers, “I had to go to Europe for three weeks, and where else could I store a Rolls-Royce in New York City for that long for only $10?”
Okay, so you’re wondering what am I getting at. Well, protecting one’s brokerage account should be the paramount consideration in managing our trades (which is just another way of saying be a good steward of your account). Don’t be too eager to get into a trade too quickly; take the extra moment to look at the big picture: zoom the chart out and look at the longer-term trend. Is your proposed trade going with that trend or against it? Is it worth the risk (and it may be)? Many traders fond of trading breakouts like to wait for price to retest a price point before entering a trade. For the benefit of those not familiar with what I mean, I will explain. A market price retest is when price action, in this example, rallies through a resistance level, then pulls back and bounces back up off that same (now support) level. Sometimes it’s worth the extra time it takes to see where the market is really going, as opposed to where you think it’s going. Yes, time…one of the most maddening and insidious aspects of Forex trading is waiting minutes, and hours, and even days or weeks for a move that only takes a few seconds.
Waiting is just such an inescapable aspect to this business. Waiting for a chart to set up; waiting for an entry; waiting for an exit, waiting, waiting, waiting…definitely not a business for those who are preoccupied with instant gratification. It’s likely that once or twice a week, a day will go by that I place the trades, and this drives my wife crazy (she equates this with laziness). I have to constantly reassure her that A) it is better to have no trades than losing trades and B) Forex trading is a lot like fishing in as much as you never know exactly what you going to catch that day, if anything at all.
That’s all for part one, we will continue this discussion next week in part two!
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