Forex Trading Tips: Forget Discipline
Since I am writing this week’s column from Dubai’s Media City sandwiched in between meetings I’ll make it short and sweet. No weekly news stories, no Youtube clip, but fear not I do have some advice that I think you’ll find interesting.
Last week I noted that as traders we must be selective in our setups if we want to achieve long tern profitability. Well that was a nice sentiment with absolutely no practical value. It’s a platitude that can be thrown away along with such pearls of wisdom as we should all eat less red meat, exercise 45 minutes each day and drink 8 glasses of water to keep ourselves properly hydrated.
We all know what we should do, but as human beings we rarely have the self control to do it. In fact I wonder if complete obedience to discipline is even good for us. In psychology there is a concept that what we repress will eventually express. Ever notice that fat, sloppy, gregarious people rarely go postal? It’s usually a guy with military crew cut and an iron jaw that finally snaps.
Please don’t misunderstand me. I am not arguing against discipline. Discipline is crucial to our long term success. My point is that we can never hope to achieve it 100 percent of the time and even striving for this goal could end up in a disaster as one crazy market trade could unravel years of discipline and send us into the abyss of reckless trading.
Instead, it is much better to acknowledge that as human beings we will inevitably give in to our urges, which means that as traders we will overtrade. After all, why do most us trade the FX market? Because we love the price action. We love the 24 hour 5 day a week carnival that is the currency market. If financial gain was our only driver, we would just buy carry on the dips with no leverage and check our accounts once a quarter.
Recognizing the fact that we will overtrade is our first step to controlling the problem. I believe that the only way to control our trading urges is to let them run wild, but in a safe contained manner. In short I believe every trader should have a “junk” account – a reasonably small amount of capital that we can trade to our hearts content. Your setup not giving you any signals? No worries trade your junk account on pure market feel. Want to know what would happen if you doubled down? Don’t ever try it with your serious trading money, but feel free to experiment with your test account.
In fact experimentation is the key concept here. By freeing yourself of the iron shackles of discipline you open yourself up to new possibilities and ideas. Almost all important advances in science occurred as a result of mistake, the same often happens in trading. Having a junk account liberates us from the relentless necessity to control risk, and at the same time can lead us to unexpectedly profitable trade ideas. Give it a shot.
Next week, I’ll share a setup that I discovered just this way – by sheer accident
For those in Middle East -- hope to see you in Dubai on the 25th. Otherwise, I’ll be back in NYC next week. Happy trading to all.