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Forex: Teach Yourself to Watch, Not Act
Do you have the discipline to stand aside for days or weeks between trades?
Like me, you too may enjoy reading the thoughts of experienced foreign exchange professionals on the business of trading. Jim Martens, EWI's Senior Currency Strategist, regularly posts those in the "Market Insight" section of his intensive Currency Specialty Service. Here is a short adaptation of Jim's "Insights" from January:
After writing the final Market Insight of 2008, I received a number of emails from subscribers regarding my contention that most traders – even the very best traders – are wrong more than they are right. Well, I would go even farther and suggest that a trader can win with only a 33% success rate. The key to that is sound money management.
In practice, that means adopting an approach that offers specific points of ruin. (The Wave Principle does just that.) You must be able to quickly admit a mistake and then, just as fast, act to protect your trading capital. It also means teaching ourselves to wait for days when the market's likely path is clear – and act only then, aggressively and with confidence.
To do this over a long period of time, you must have discipline. (Lack of discipline is the main reason why so few traders will experience lasting success.) Search all time frames looking for best opportunities, across related markets. Sometimes they would be temporary, but at other times we might see longer-term Elliott wave patterns that would drive a macro view. And when patterns are unclear, we would sit on our hands, or turn our quote machines off.
Could you do that? Be honest – could you stand aside for days (or maybe weeks!) between trades? Could you leave your funds sitting idly in your account and not risk it to satisfy the need to be part of the "game?" You know it would reduce your stress levels. Besides, statistics show that in equities, for example, a few days' worth of trading can make the difference between long-term success and failure. Remove those days, and profits from equity trading go mostly flat.
If that's true, why shouldn't we treat currency markets the same way? Why must we act every single day? Wouldn't it be best to wait for the those rare, but perfect trading moments when the Elliott wave picture looks as clear as it did in the EUR/USD before the latest Fed's interest rates announcement, for example? Why not teach ourselves to wait for those high-confidence situations when you know exactly at what price point your outlook is wrong, and when the potential reward outweighs the risk by multiples?
Most forex traders will shun this approach – because it means spending a lot of time watching and not participating. Simply put, it takes all the fun out of it. It would turn what we do into a business, stripping it of all its entertainment value. I doubt many of us are wired the right way to watch rather than act.
Could you do it?
...JJM...