Today, we kicked off the new year with a Q&A session. Traders asked a number of excellent questions pertaining to trading psychology, risk management, analysis& strategy, as well as other important topics traders face on a regular basis.
We understand the difficulties of trading, which is why we’ve put together a variety of guides designed to help traders of all experience levels.
Highlights:
- Discussed entering trades on pullbacks, describing one method for doing such
- How to overcome the hesitancy (fear) in taking set-ups to avoid losses
- Other topics pertaining to important facets of trader development
One trader asked about buying into pullbacks (or shorting rallies) and how to mitigate the risk that it turns into an outright reversal which turns into larger losses. This hits to home, personally, as someone who frequently enters trades on pullbacks. For example, if the market is trending higher and it starts to decline, I will look for support levels, whether it be a prior price level or trend-line or confluence (it could be another form of support a trader might use, i.e. Fibonacci levels, etc.) as an ideal spot to look for price to reverse momentum of the short-term correction back in favor of the primary trend.
One way to identify a reversal in momentum is through a key-reversal or engulfing candlestick. Once one has developed you have a signal momentum could be turning favorable in addition to a reference point from which to assess risk and place a stop. In the case of a long-trade, a prudent spot to place a stop is below the low of the swing-low created by the candlestick. This is of course just one way to approach pullbacks, there are others, but this method offers good structure.
In the video, we discussed the set-up below as an example of a pullback trade.
EUR/JPY: 4-hr
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Another trader asked about correcting their problem with hesitancy in taking a trading signal to avoid a loss. First off, this is a very common problem – trading with fear. The first step to addressing this is by examining your trading size and see if you aren’t risking too much per trade for your personal risk-tolerance. Overtrading through improper position-sizing is an avoidable issue which we can control. The result of the trade is not.
With that said, the solution is to reduce trading size to a level which you are comfortable with and allows you to accept any loss which might result should you get stopped out of the trade. If you are still having issues taking trades, then reduce your trading size down to a level which is inconsequential. Work on taking good trades, and through a few winners you'll start to build confidence. Once confidence is built up, you can begin to return to a normal trading size. For more on this topic, check out this guide we’ve created – Building Confidence in Trading.
For the full conversation, please see the video above…
Related links to this webinar: Creating a Trading Plan; Handling Drawdowns; Risk Management; Analysis, keeping it simple; 6 Mistakes Traders Make; Focusing on the Process; Building Consistency; Classic Chart Patterns, Part I; Classic Chart Patterns, Part II
---Written by Paul Robinson, Market Analyst
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