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A New Way of Thinking about Which Trades To Cut and Which to Keep

A New Way of Thinking about Which Trades To Cut and Which to Keep

2013-11-12 03:00:00
Tyler Yell, CMT, Currency Strategist
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Talking Points

  • Trading Is Little Different Than Running A Business
  • Business Success is Built on Employee Retention and Termination
  • Trading Is a Game Built on Keeping Good Employees & Letting Go Of Bad Ones Quick

“Think about it this way: If you had to launch your business in two weeks, what would you cut out?”

― Jason Fried & David Heinemeier Hansson, ReWork

When entering into a work force and meeting different companies you’ll often hear the phrase, “our biggest asset is our employees”. This is often warming to the fearful entrant into the workplace, however there is a flipside to this truth and that is that the wrong employee or worse, group of employees, can easily bring down a business. Understanding this simple fact can have a powerful and beneficial impact on your trading.

Trading Is Little Different Than Running A Business

Treating_Trades_Like_An_Employee_body_Picture_1.png, A New Way of Thinking about Which Trades To Cut and Which to Keep

Throughout this article it may be helpful to think of your trading account as your own enterprise with you being the CEO behind a beautiful mahogany desk. As the CEO of your company it’s your job to make sure that every employee (i.e. open trade) on your payroll is pushing your business forward and that you’re not holding on to any employees that are holding you back.

Why think this way?

Trading is simple but that does not mean it’s easy. One way or another, your long term success as a trader will depend on your ability to fight the fight for trading survival by quickly cutting trades that are doing more harm than good and keeping trades open that are technically acting right within your analysis.

If you’re having a rough time with your analysis, feel free to try out DailyFX on Demand with a 30-Day Money Back Guarantee.

Business Success is built on Employee Retention and Termination

As the CEO of your own trading firm, you need to be able to cut the fat that is holding you back from reaching your goals. While companies know that it is expensive to hire, train, analyze and fire bad employees, they know that is a much cheaper alternative than holding onto said employee and hoping she or he is due for a bounce of good performance. Sadly, this is similar to what many traders do, where they hire a bad employee (trade) and once proven ineffective, they’d rather hold on hoping for a turnaround as opposed to cut the waste and look for another employee that can deliver the results they originally sought.

Learn Forex: A Long EURUSD Employee May Be Ready For a Pink Slip

Treating_Trades_Like_An_Employee_body_Picture_3.png, A New Way of Thinking about Which Trades To Cut and Which to Keep

Presented by FXCM’s Marketscope Charts

As a forex trader, you’ve probably learned or are still learning that markets are emotional and trading should be logical. From a logical point of view, if trading under the paradigm that this article recommends, then a long EURUSD position is no longer making business sense as EURUSD continues to break levels of support on a move lower. This is a simple illustration with a current chart to show you that EURUSD long is likely not helping further your businesses goal of long-term profitability.

Trading Is a Game Built on Keeping Good Employees & Quickly Letting Go Of Bad Ones

Just like its often painful for a company to layoff an employee that had so much promise at an interview, it’s tough for a trader to let go of a trade gone sour. Naturally, when you got into a trade, it likely had a good story behind it that made it easier to open the trade along with some excitement about potential property. But in the end, the p/l doesn’t lie and the only thing worse than a 5% loss is a 10% loss or more.

This article begun with a quote from the book, Rework, that asks a prespective business owner what they would cut if they had to begin their business right away. This question is meant to adjust your mindset so that cutting the unnecessary portions of the business are easier to stomach. Of course, trading is a bit different than heading up a start-up. But like the quote challenges start-ups to ask them self, I encourage you to reflect on the following question:

If you were going to raise outside capital to manage tomorrow or next week and had to show your open trades, which would you be embarrassed to show?

Those are likely the trades holding you back that you should think about firing.

Happy Trading!

---Written by Tyler Yell, Trading Instructor

To contact Tyler, emailinstructor@dailyfx.com.

To be added to Tyler’s e-mail distribution list, please click here.

If you’d like to combine this lesson with price action signals you can register to take this free 20 minute “Price Action” course presented by DailyFX Education.

In the course, you will learn about the basics of price action and how to use the clues the market is providing to place trades.

Register HEREto start your FOREX learning now!

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