Trading Sharp Thrusts In Price Can Break Discipline

We’ve seen a few Forex pairs that I highlighted in the setup section that have had some strong directional moves.

Every trader who sees these moves would love to be in on the price jump but sometimes, it can be difficult to do so.

Yes, you certainly can just market in on a hunch but over time, that is not going to play out in your favor.  It is an undisciplined approach and there is nobody whose had long term success would ever do that.

So what do you do?  Let’s take a look at one of the charts.

I have added the daily chart in an inset and the larger chart is the four hour time frame.  The jump in price this week as been 110 pips or so and as noted on the setup chart, I wanted long.

The problem is that using my rules, there was no place to enter this chart.  I see setups on the daily chart and the lowest I will go is the four hour when we are talking about trading currencies – the spot market.

Price movements like this sometimes will go on without me.

But I am o.k. with that.

My rules are more important than missing a trade.  There will always be another trade but if I am undisciplined, the bad habits mount.  Soon, the equity curve of the trading account dips and depending on the severity, my trading career can be over.

It wasn’t always like this.

There were times when I started that I would market in and take a short ride in the market.  I say short because these amateur moves more often result in buying the highs and then getting wiped out.

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When extended markets break, they can be violent.  In the retail Forex market, that pain in minimal because the other side of your trade, is usually the broker.

In the futures market, you get hit by a violent reaction and you can have more slippage in one trade than you do the whole year.

You could also see a loss that never showed up in your back testing – an outlier.

Stay With The Trading Rules

The point of this article is that you must, without question, stay with the rules laid out in your trading plan.

While it is easy to not do that – and still be rewarded by a winning trade – it will build bad habits that will eventually wipe you out.

Can we still get a trade?  Absolutely.  I’d be more inclined for a short trade at this point even though my initial goal was a long trade.

That’s another benefit of sticking with your rules – you can find an opportunity even after the original one is long gone.  Let’s see what the next few days gives us.

 

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  1. Shingi

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