Master Trader or Just Blind Luck?

We’re half-way through the third week of the Explosive Growth Mentoring trading room. I wish I had this training back in 2004 when I first started trading the Forex market. It would have saved me a lot of blood, sweat, and tears over the years. I’m refining strategies and ideas that I’ve learned previously, as well as learning new things from Casey, Nathan, and even fellow room members.

Are You a Master Trader?

When we have a measure of success in trading, we all want to consider ourselves Master Traders. In reality, being a Master Trader is knowing that you have no mastery of the market at all. The market does what the market does and will continue to do regardless of how good a trader you may think you are. So the only way to really be a Master Trader is by understanding that you have no control of the market and you must submit yourself to the market’s movement. It also involves taking your profit when you have a reasonable amount (you should have that in your trading plan) and entering trades when they meet your statistically calculated entry criteria (which should also be in your plan. You have a plan, right?)

The Market Answers That Question For You

When I start to think I’m the Master Trader, I have days like yesterday that bring me back to reality. Yesterday’s loss hit me financially, but didn’t hit me emotionally as much as I would have expected. Last night I was trading the Asia session (I wanted to make my loss back up as quickly as possible, without being stupid) and made a few percent profit on my account. Then I entered a CAD/CHF long at what looked like a good spot for a few pips – the current Low of the Day (LOD.)  Typically the current or prior HOD and LOD are good places for a small bounce. In this case, not so much. It just dropped right through the LOD and didn’t look back. Now I was stuck. Did I mention I hate being stuck? Time to pull out the bullets.

Today’s CAD/CHF Trade

As I mentioned in yesterday’s article, calculating the potential move and where to fire the bullets is a great plan. I did it on this pair. I stayed up late and watched the pair, planning to try to get out of the trade during the London session. But this guy wouldn’t have any of that staying up all night stuff that he used to do in college. So, I place my pending bullets and set my stops and targets and just went to bed. I woke up a couple of times and looked at it, closed a few bullets, made a little bit on them, reloading the pending order in case the price dropped back down to that level, but the pair was doing what my niece Emily has come to call the “crab walk”. It was just banging back and forth and going sideways.

I was comfortable the whole time because price never got anywhere near my max loss level. But it was pushing up and stopping at a point I had identified as strong hourly resistance that was supposed to be strong hourly support when I enter the trade. There was important news on the Canadian Dollar coming out at 8:30 and 10:00 New York time, so I was apprehensive about where this pair would go.  I don’t like to be in a pair when important news comes out because the results are unpredictable. When the market does move on news it moves fast and impulsively and it’s impossible to get out of a bad position until the position is at the worst possible price. I like to get out of the market before news releases occur and then fade (trade against) the impulse or wait for a retrace and trade with it. But, did I mention I was stuck? I couldn’t get out of the positions I was in without taking significant loss (10% ish.)

The News Comes Out

The 8:30 news came out showing not too much change causing the price to whipsaw (move quickly back and forth), the fact that it didn’t move hard against me was a relief, but it started looking like it was going to push on down. I was still hoping I could get out before the 10:00 am news. Of course, since the price was moving against me, I was still in the trade at 10:00. That’s when the Blind Luck struck. The released news was positive for the CAD, so price moved impulsively in my direction, hitting all my profit targets on the way up and closing all my positions – giving me a 20% account gain in that one move.

Truthfully, I don’t believe in “luck”. This was just a market move that was a result of positive CAD news and I was just positioned right. But there was no way – short of a crystal ball or a time machine – of knowing which way that news would drive the price, so I can’t credit this to being a Master Trader either.

The Lessons Learned (or Relearned)

My take-away from the trade this morning is this:

1. The market always does its thing without regard for your position, so always protect your position and your account – even if that means taking a small loss. “When in doubt, get out.”
2. Be aware and wary of important news releases (usually marked red on economic calendars. I use forexfactory.com.) News releases have the power to move the market hundreds of pips. Protect your positions and your account when they are imminent.
3. Always set your take profit levels in your orders, in case the market moves fast and you can’t react to close your trades in profit fast enough.
4. Be sure you have a trading plan and follow your rules at all times. Review the rules periodically to see if they can be improved upon.

Have a great trading day,

Tim