Check out this guide for tips on Building Confidence in Trading.
Today, we did a bi-weekly Q&A session where the room was opened up for questions pertaining to topics impacting trader performance. Next Thursday, for the “Becoming a Better Trader” webinar series we’ll discuss a specific topic. The subject has yet to be determined, but you can check the Webinar Calendar next week for details.
One trader asked about event-risk and how to handle it; do you take a position into the event, wait until after, trade the actual event itself? First off, knowing what risks are out there which could impact the market whether you have a position or not is important. Even if you are a technical trader. It depends largely on your time-frame, but if you are holding positions for a few days or longer then maintaining a position, whether it be in full or partial, through events is common practice. This is where having defined risk in terms of position size and stops and limits in place becomes important. If the event causes the position to move against you and take out your stop-loss, then so be it. Losses are part of trading. The outcome could also push your trade towards the intended target. Market trends and chart patterns are essentially a footprint of all market participants involved, and with that said, if you are in the path of least resistance then the news-flow will typically be in your favor. Not always, of course. Major events into the weekend are another story due to liquidity issues, and avoiding these without a solid plan of action is a prudent idea. These are typically rare, i.e. French elections.
Another trader said she was having difficulties handling the down periods (drawdowns) from a psychological standpoint.This is a topic we discuss frequently because it’s a natural part of trading. Even the best of the best going through stretches where they face difficulties and experience drawdowns. The key is to mitigate the severity of the drawdown through sound risk management rules and taking certain actions to help turn it around. Taking a little time away when struggling, even if for only a day or 2, can do wonders for the psyche. This is called, “getting out of the fire”. It’s a good idea to look at recent trading activity and identify any mistakes being made. You can’t correct something if you don’t know exactly what’s wrong. Sometimes market conditions just aren’t conducive to your trading style (i.e. trading breakouts in a low-volatility, range-bound market). In this case, you might be overtrading and need to back-off. One way to know if you are making the ‘right’ trades within your trading plan is to utilize a checklist. A checklist, whether physical or mental, will help keep you honest in your decision-making process. Certain boxes which you have pre-determined to qualify as characteristics of a good trade need to be checked off for a quality set-up.
For the full conversation, please see the video above…
Related webinars: Creating a Trading Plan; Handling Drawdowns ; Risk Management; Analysis, keeping it simple; 6 Mistakes Traders Make; Focusing on the Process; Building Consistency
---Written by Paul Robinson, Market Analyst
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