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Everything I am about to say is statistically inferior, mathematically inefficient and systematically suboptimal.
There is only one reason to use what I am about to tell you – because it works in real life trading.
But first a story. A few night’s ago K laid out a long GBPUSD trade in early Asia session trade. It popped in morning Tokyo dealing and she exited with a profit. A few hours later a Euro official made an offhand comment and the pair plunged well below her initial stop.
“You got lucky,” I said.
“Wasn’t luck, “ she insisted, “I knew it was going to test the recent highs!”
But of course, it was. Everything is FX has a large degree of luck. The very same day a few hours later the pound verticalized more than 100 pips in less than 5 seconds on news that UK may get to stay in the EU for another 2 years.
Anyone who trades FX knows that these news bombs are common. They are not frequent, but common enough that they take out a few thousand retail traders out of the market every month. It’s simply the nature of the game. FX markets are very news sensitive and when they react they will blow through any moving average, any Fib level any Elliott wave structure – which is why I consider all technicals to be just lines in the sand.
There is one thing however that K did that vastly improved her chance of success. About a month ago we decided to trail all of her trade ideas. Now, whenever a trade goes in the money by X amount of pips we lock in a profit. Even if it’s a small one.
Yes, yes, I know. This is an inferior way to trade. You rarely get to collect big profits this way. That’s all true. And if markets weren’t highly random that argument might actually be valid. But in real life, markets almost never trade the future they way they traded in the past, which means that whatever system you are using is bound to fail, especially if it’s a short-term day trading system.
Unless you exert some control.
In our chat room, we started to use a new moniker – TTM. It stands for Take The Money and it basically means you should do everything in your power to never give up a profit once you have it. Markets are finicky by nature and relying on continuity is a sucker bet made by naive rookie traders. Wizened operators know – to win at trading you need to Lock in your Luck.