Let’s be honest, it’s so tempting to stay focused on finding entry points for trades…
But how much time do you spend considering your management of open positions?
It’s a weird one because the management of your trades is where you’ll almost always find (or lose) the discipline that makes or breaks your campaign. But we don’t always go into each opportunity with a fully formed management plan in place.
Time will be spent scanning the markets, seeking out the carefully researched price pattern or indicator signal. That’s the glamorous part – we seem to have this deep reverence of trade entries. But once the trade is open the ‘cat on a hot tin roof’ effect can kick in…
Everything is happening as expected, the market may not even have really moved anywhere yet, but a few minutes into the trade and you’re already hopping around with anxiety:
What if it goes down from here instead of up?
Ooh, is that a double top reversal forming on the one-minute chart (even though you’re trading the hourly timeframe)?
Hmm, should I take these 6 pips of profit (!) now, and have a rethink on the 150 pip target I first had in mind?
You know the kind of thing, I’m sure. It’s amazing how having a bit of money on the line can suddenly have you thinking in unhealthy ways. So let me share a tip with you today that can help with managing open positions.
A ‘backward’ way to get better at managing trades
Objective trade management is a skill that’ll develop through practice. There’s no real short cut other than to expose yourself to the feelings and emotions you’ll go through as you put real money on the line.
And it’s all perfectly OK. You’d expect to experience a range of natural human reactions when you have open positions in the market: it is just your ape-brain survival instincts trying to keep you out of situations where risk is involved.
Unless you have psychopathic tendencies of course, in that case your ice-filled veins will have no problem at all in riding out the emotional rollercoaster stage that the rest of us must move through and master!
So this tip I’d like to share with you is something a little unorthodox. It’s a training technique I was exposed to when I first started trading futures.
You might have heard me mention it before but it’s designed to quickly get you over any hang-ups about having trades open with money on the line (so you can start to follow your trading plans with a clearer mind) and it is super-effective.
Here it is:
Tip: ALWAYS hold an open position. Never be flat.
I must stress, this is a TRAINING technique. It’s a way to quickly get you over the strange feelings and anxieties that can creep out of the woodwork when you have open trades on your account. We’re not using this as a way to actually manage your live-campaign trades, so please don’t send angry emails telling me it goes against all the conventional stuff you’ve read in trading books!
Here’s what you do…
Choose a market that’s active at the time you’re sitting down to do a training session, call an order ticket up onto your screen and enter a small trading volume (that’s the £ stake per pip if you’re spread betting).
Next, toss a coin. Heads you’re going to buy, tails you’re going to sell!
So depending on how your coin landed, you’ll either hit the ‘Buy by market’ or ‘Sell by market’ button if you trade using the Metatrader platform.
And then you simply ride out the undulations of the market!
Follow the market on a very short timeframe – a one minute, or two minute chart can be effective – or simply try to tune yourself into pure order flow as you watch the changes in the bid and ask price in your chosen market.
It doesn’t matter if you usually trade the 4 hour chart or the daily chart. The idea here is to expose yourself to sensory overload and get you desensitised to emotions that can affect your discipline.
The small timeframes I suggest using for the exercise can help condense that experience and heighten its effect.
Set yourself a time limit and tell yourself that for the next hour you’re going to participate in this market. You’re not allowed to be flat but you can reverse the direction of your position. To do that you’d simply enter an opposing ‘market’ order with a volume of 20p per pip.
So you can be long or short, but you must maintain your presence in the market and change your trading direction according to what you see and think.
The idea is get you over any timidity felt when you have open trades. But you’re going to notice something strange too…
You’ll start to see the market in ‘High Definition’
This is your brain’s reticular activating system (RAS) – the bit that filters out the stuff it thinks is really important – kicking in. And it’s really going to lock onto your trading chart and give it high priority because of the perceived element of risk.
Your RAS is the reason you can suddenly start to perceive price patterns or other phenomena conspiring against your trades – things you didn’t consider relevant before you pulled the trigger.
But by working with the ‘always have a position’ exercise you can build a resistance to the sudden panicky feelings you can get when your market vision turns HD as a result of a filled entry order. It can help you stay clear-headed and in control when it comes to your real trades.
By the time you’ve dedicated yourself to three or four hour long training sessions you’ll start to feel comfortable in this state of heightened market awareness and it can have a big effect on your ability to stick to the plan on your ‘real’ trades.
One word of warning – please do be aware of any economic announcements that are due out on the days you intend to do your training. Give yourself a 15 minute buffer either side of a big announcement to sidestep the increase in volatility (unless you fancy a real test of your mettle!)
And don’t worry about losing money, I’d set a small amount aside as your ‘trading tuition fee’ and fully dedicate it to exercises like this.
You could even TRY to lose a small amount of money as you move in and out of your long/short positions as an extreme version of the exercise. How about that for an ego-busting element that’d turn all the normal emotional entanglement on its head?
Be Prepared: Market Moving Data Coming This Week (London Time)
Wednesday 21st December
15:00 USD Existing home sales
15:30 USD Crude Oil Inventories
Thursday 22nd December
13:30 USD Core Durable Goods
13:30 USD GDP
Friday 23rd December
09:30 GBP GDP
15:50 USD New Home Sales
Monday 26th December
– Boxing Day
Tuesday 27th December
– Christmas holiday
This is your last Trader’s Nest eletter of 2016. I’ll be back with you in the New Year. So it just leaves me to wish you a very Merry Christmas and a happy and prosperous 2017!