Would you trade the same idea twice?
In this episode of Truth About FX, Walter digs into the subject of trading ideas, signals and execution. He asks an important question when deciding which road to take: Is this according to my beliefs? Have I tested this with my system? Walter also talks about an essential method of determining when you have reached your turning point.
Download (Duration: 6:04 / 6.94 MB)
In This Episode:
00:40 – trades that didn’t work out
01:42 – why you’re losing trade
02:43 – wrong approach
03:48 – too much emphasis hurts
04:34 – freight train
05:14 – a fruitful area
05:37 – fortitude
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter! How many times will you trade the same idea? For example, if you’ve had two losers at support and resistance level, what would it take for you to trade the setup for the third time?
Walter: That is a great question, Hugh. I’ve actually, just this week — I think forty-eight hours ago — I had couple of trades that didn’t work out. One of them I got triggered on — actually, two of them I got triggered on — one of them I didn’t get triggered on. The two that I got triggered on was like blasted almost immediately, got stopped out.
Today, we have another signal and I am going to take them. I got two signals so I am going to take them most likely during the London session. This is a timely question. My thing is to concentrate. We’ve been talking a little bit about this in the private forum, the group that we have and, really, the focus should be on executing your system.
This isn’t meant to, like to demean anybody or to say you are wrong or whatever, but my belief is that when you have losers, there’s a couple of things that could be going on here.
If you are following your system to a T, and you know that it’s profitable in the long run or you believe it to be based on historical data –and you can argue what you want about historical data — but if that is what you believe, then the only reason why you have a negative or a losing trade is because of bad luck. I mean, that’s really the only reason.
This question assumes that there is something going on here that needs to be fixed. That is what I am reading between the lines. I would say, “Definitely no”. Keep following your system.
In other words, let’s say these two signals that I take today are stopped out again and then next Tuesday — which should be a few trading days from now like three-trading days from now — I get another signal on the same pairs in the same direction, I’ll take them again.
I’ll look at it is, focusing on executing my system. I am staying through to what it is, not modifying it based on the bad luck that I have had because I know there is going to be some losers.
That is really my approach and I think that, certainly, I fell into this trap early on which was I was trying to modify my systems based on the recent trades that I had. I think that is the wrong approach.
Most traders would be better served focusing on the execution of their system and not really on modifying it because “So and so… This happened yesterday” or “This keeps happening this month” or, “Somebody thinks that my trading system has this error or something so I’ll incorporate their idea” or whatever.
That gives the way from what I’ve done in the past to verify the systems. If I verified it by trading in forex tester and I verified it by trading really small account and I’ll have this confidence in the systems, now I am going to scrap it, change it because of the last couple of trades that I have had.
That seems a little bit drastic and it spins you off in the wrong direction. That’s my approach. What do you think about that?
Hugh: I totally agree. It comes down to what you tested, what works. Sometimes, maybe you need to step away but I think, in most cases, if you follow your system you’re gonna be claimed with a lot of averages. I totally understand where this question is coming from because it hurts sometimes to… If you place too much emphasis on winning and losing then you can maybe take a loss too hard.
That is always when the second signal comes long and that’s where you make all your money back so, yeah. I think number one, you should follow your system. Number two, just take losses and just try. Don’t fall on them too much.
Walter: That is a fair point. You are absolutely right. It’s actually one of those things that you can use to modify your own beliefs, like or really tap into the psychology of the herd. Let’s say that you are watching the market and it is just rocketing up, and it keeps going up, up, up.
It’s just a crazy market and it’s like a freight train and it’s going straight up so right about the time you start thinking “Oh wow, I can’t believe I’ve missed all this. I need to get in on this uptrend”. That is usually the turning point.
It’s kind of what you tapped into right now when you said that like the third trade, the third signal. you go and “You know what? I am not going to take this one. I’ve been blasted the last few times”.
That is usually the time when you are going to get a nice, fat winner. I think you are definitely in the same spot that I am. This is the way to advance because what’s happening here is you are trying to control the market.
I don’t think it’s a fruitful area. We have a member in the forum and he had a really awful week. Lost, I don’t know, 380 pips or something and he was like “Oh, this sucks”. He was down on himself and everyone was saying “No man, keep with it, stick with it blah, blah, blah”.
He comes back the next week and has a really strong week. It was because he had the encouragement and he had the fortitude to stick with his system. He didn’t change anything, he just took all the same signals the next week and he rebounded really nicely.
That is the kind of thing I am talking about here. Just focusing more on the process when you feel down like that, if you have a string of bad luck. Definitely a good advice. Thanks a lot.
Hugh: Yeah, it’s a great point. Thanks, Walter.