I put off doing the weekly outlook yesterday because I basically couldn’t see anything that even remotely interested me as far as STT goes. For a high probability setup we need a solid trend, I like to trade the second bounce off of the moving averages after making a lower low (in a down trend) or a higher high (in a up trend).Right now I don’t see any of that. Depending on what happens today we may have a couple of pairs setting up later on in the week so for me today is simply an extended weekend.
Remember it’s just as import to know when to trade as when NOT to trade, especially when you are trading a trend following system. We must do all we can to avoid whipsaw market conditions.
Which brings me onto my next subject…. Losses!
It’s a common problem among many people who email me, they are simply not psychologically ready to take losses.
Most people agree losses are part of the game but are they truly ready to take them? Unfortunately most are not and it results in constantly jumping from one system to the next.
No matter what system you use your wins and losses are random, therefore you will get streaks of wins and occasionally streaks of losses. The more experienced you become with your system the less likely you are to have substantial losing streaks but they will happen.
As you know I always aim to let my trades run as long as possible, at the very minimum I like to see a risk reward ratio of 1-2. By doing this I am making it so much easier to come back after some losses.
Here’s a fun little game which will help you get your head around how to take losses yet still come out ahead over time.
We are going to do a simple coin flip experiment, as you know a coin flip has a 50-50 chance of winning so lets tip the odds in our favour (just like a trading system). If you flip heads you lose $1 however if you flip tales you win $2. Now grab a pen and paper and start flipping the coin (trading). Record each flip and mark down if you win or lose. You will notice that even though you may have several losing streaks, the more you play, the larger the sample of trades becomes and the odds will even out putting you well in profit over time.
Provided you have a good system this is exactly what happens in trading.
I know you guys are busy but if you take a few minutes to try this I am sure it will help you understand what I am babbling on about.
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