A tough-to-manage event for any trader is a lack of setups.
But there's something that can be even more challenging
A rapid market drop with ZERO real entry opportunities.
To give this lesson some context, we have seen a global drop across almost all major markets since Friday.
I was doing a teaching session last night specifically on why right at this point, despite the drama, this to me isn’t a full "sell-off".
It's more of a "risk-off" scenario in many of the major markets.
However...over the coming few days and weeks, time will tell.
Along with that, myself and my Total Trader students were reviewing two short positions we had been in since since last week.
USD/CHF hitting its 3:1 target and OIL with a trailing stop at 1R of profit locked in.
But this lesson isn't about us bragging about the result of two trades, it’s about something all traders should consider very carefully.
Those trades were NOT taken because…
1. We "thought" or we "knew" those and other markets were going to dip.
2. We just “jumped in” as the markets started to tumble.
3. We had a sudden FOMO and couldn't hold ourselves back
You see so many traders JUMP on moves through the HUGE fear of missing out...
“I should have entered here”, they think and then just when you think it can’t drop anything further it defies your expectations and makes a new low.
Then you think….
"I can’t miss this move”, so you make your entry
"Did you just chase the move?" your subconscious whispers.
The conscious mind then justifies what you have done by saying "It’s OK" or "Just this once" or even worse
"This move might be the move of the year and I can’t afford to miss it!"
When you do and say things like this, your primary trading driver in the short term becomes a "results" based one.
And then nearly everything you assess, feel or do will be governed by whether each trade wins or not.
So what can you do about this?
Well, our two winning trades could have ended up being losers and someone could easily say we got lucky to be short in two markets as most markets tanked.
But the way we assess those trades, REGARDLESS of the result or any short-term good or bad luck is the following...
1. Were both markets in the correct pre-determined market condition for the setup?
2. Did we each follow the set-up criteria?
3. Did we manage the trade correctly upon entry and exit?
So if you feel you missed out over the past few days and you had no setups - results not process thinking
If you feel you did well but you had no plan for the trades you took - wrong thinking and wrong actions
If you feel you got lucky but you had no plan for the trades you took - what's going to stop that from happening again where it may not end so well?
In fact trading that way never ends well.
Until, next time
Alright… Not one of the most exciting subjects we have ever covered, but definitely one of the MOST important.
Risk management is something so many traders “think” they have locked down, but actually what they are doing is taking themselves down a road of no return.
Both for them and their account balance.
And what’s worse…
There is a group that simply overlooks risk altogether, or takes some one-time advice that is usually completely inappropriate for them and the way they trade!
So how do you make sure you not only know what to do when it comes to risk management, but you ACTUALLY do it?
First Off…Know Your Numbers
Yes, it’s a small bit of maths, but knowing the simple multiples can save your account balance!
Let’s say you are risking 10% of your cash pot per trade.
But that only requires a 5 trade-losing run to be the best part of 50% down overall.
Oh well, I still have half my money.
Hang on!
You now need a 100% return on that balance JUST to get back to where you were 5 short trades ago.
Let that sink in for a second…
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