This is a guest post from Tino @tradersreality. This article originally appeared on tradersreality.com and is reposted here with permission.
So you have your methodology, you have studied it, back tested it. You know what scenarios need to be in play for you to make that perfect entry and make pips.
We Still Have The Same Instincts…Even After 12,000 Years
Hmmm. Really..? Is it that simple..?
Back in the archaic Neanderthal Age, Their minds were programmed for survival, seeking the safest option.
We are no different in today’s way of thinking.
Conventional Wisdom would state that maintaining a mind set of “believing” that if we “think” it’s going to happen, then it will, we can assume that we can envision anything our hearts desire.
Now i’m not advocating that visualization is not a sound practice for anyone that wishes to “attract” materialistic possessions or relationships, new jobs, (you get the idea). But it’s a thought process that new traders enter with.
Bad Move…
They say you create your own universe as you go along. But the market is it’s own universe with different laws.
Lets face it guys. Always trying to look for the perfect entry will set you up to make many terrible decisions. The one MAJOR mistake that new traders make is believing that just because a trade was profitable, then it must have been due to a “perfect” entry criteria being fulfilled.
To illustrate the point of this post, Lets take two scenarios with Trader X and Trader Z
The Perfect Entry – Trader X
Lets assume that every time Trader X wins on a trade, its because his entry was “perfect”. He believes that if a certain set of variables are present in the market, whether its a Doji, a Bullish Engulfing Pattern, or simply, a set of candlestick formations that favour the corresponding trend (bearish or bullish) he will enter a position.
So Trader X waits patiently at his screens for a trade opportunity.
He then see’s an opportunity to trade. However, this opportunity to trade has not fulfilled the same criteria as the last winning trade, which Trader X deemed as successful because he believed that the success of his last trade was the “entry” was “perfect”… So he decides to wait.
I can relate to this statue.
Then Trader X witnesses price going in his favor. He starts to become irritated with himself thinking why did he hesitate to enter when the opportunity was presented. He then starts the “should-ah, would-ah ,could-ah” phase, and then….he goes on to do what most traders new to the game of trading:
Trader X enters a position on the premise that he does not want to miss out on the move that (had he entered when the opportunity was present), he would have made a money on the trade.
FOMO (fear of missing out) has manifested in Trader X’s mind.
Trader X has no control of what is happening. His conviction of trying to re-create “the Perfect Entry” has caused his emotions to completely take over his mind and make him feel anxious, fearful and irrational.
“Having Expectations In Forex Will Most Definietly Help You To Fail…”
He does not want to miss out on the money that could be made on this move. He completely dismisses the fact that there will always be another opportunity, he enters on the move, the move starts to stall…You can guess what happened next…
There is a lesson to be shared and understood with Trader X and his behavior. Trader X, from the start, was convinced that he could replicate the “Perfect Entry”.
This is the Mindset of Expectancy.
Having Expectations in Forex will open a vortex of irrational, imbalanced, indecisive way of thinking. No new trader can handle such experiences. The sad thing is, most new traders will behave this way and blame their methodology. The creation of a bad habits are then impregnated in their minds and no responsibility is taken for their actions.
Not every opportunity to trade is going to fulfill the same criteria as it did when the last winning trade occurred. This sort of mind set will hinder your progress as a trader and will prevent you from approaching the markets with a clear, neutral and unbiased way of thinking.
History does repeat itself in the markets, but you will never know when.
Accuracy – Trader Z
Trader X is an example of the pitfalls a trader puts themselves in when trying to “Perfect” the entry of every trade. Lets consider how Trader Z’s approach to trading differs when they focus on “Accuracy”
Trader Z approaches his trading with a probabilistic mind set. He is aware that every moment is unique. His trading method is objective and systematical. He has a criteria for entry, however he pays more attention to the likeliness of an event occurring against another. This gives him the freedom to be flexible with his entry requirements.
Accuracy In Trading Can Transform The Way You Trade
Trader Z sees an opportunity. Now, he see’s this opportunity as completely independent to itself. He does not think about his last winning trade. The reason for this is he accepts that every moment is unique in the market, so he accepts that the opportunity that is present may or may not go in his favor.
Based on his criteria that he follows, without hesitation, he makes the entry. The position goes against him however it does not hit any areas of concern (support or resistance). He has his risk factor locked in (stop loss) and accepts that whatever happens he can only lose a set amount he is comfortable with.
The trade then goes in his favor, the target is hit. Position closed. Trader Z moves on to the next trade.
Why You Should Aim to Trade with Accuracy
I’m sure you can see the difference between Trader X and Z. I am of firm belief that anyone reading this is aspiring to trade like Trader Z. However, there are many traders who trade like Trader X and wonder why they cannot maintain consistency in the markets.
Understanding the importance of accuracy is the one step that can transform a trader from consistently losing to winning.
“Accuracy Can Be Determined By The Distance Price Behaves Around Your Stop Before It Hits Target”
When you trade with accuracy, you approach the markets with a accepting belief that you have no control of what is going to happen. All you have control of is the management of emotions if your trade goes in your favor or not.
When you aim to trade with accuracy, you encourage the practice of objectivity and systematical trading. You eliminate any cause for a “perfect” entry because there is no such thing.
Trader X makes one mistake that leads to many emotional imbalances. Just because the previous trade had won, he created a mindset that would make him believe that he could make “Perfect Entries” on all of his trades. A fine ingredient for failure and lack of emotional control.
Accuracy = Flexibility
Accuracy allows the trader to be flexible with his trading approach. By eliminating the thought of trying to make the “Perfect” entry, the trader allows himself to connect with what the market is presenting to him.
The traders goal is to exploit the market and take whatever he can. The odds will be in his favour only if he refrains from trying to re-create a previous outcomes to previous trades.
Adapt to the unknown…As the late Bruce Lee put it:
“Be Water My Friend”…
Flow with the market. Let the market provide you the opportunities.
Act on what it presented to you.
Never hesitate.
You have no idea what will happen, so why would you judge your judgement on entering a position?
Final Thoughts
Here are a few steps you can take to avoid trying to make the “Perfect Entry”
- Accept that Each moment in the market is unique. This is one of the Principles that Mark Douglas makes great emphasis on.
- Trade Light in relation to your position: Doing this will prevent any emotions from developing that can make you behave impulsively and not objectively.
- If a possible entry develops. TAKE IT… If you know your risk parameters before you enter the trade, then you have no reason to hesitate.
- Never have an Expectation about any Event. Learn to Manage your Emotions.
If You Focus On Perfect Entries, You Will Create A Vortex Of Indecision. Focus On Accuracy. This Will Line You With A Probabilistic Mind Set
Understand this my friends, When you trade with “Accuracy ” you will be allowing your mind to develop into a state of calmness. You will never make the “Perfect Entry” But being accurate allows you to measure your decision making. Think in terms of probabilities.
This is one of the contributing factors to becoming a consistent trader.
One quality that consistent traders have is ACCEPTANCE. They know that the outcome of every trade is out of their control, the only thing they can control is the risk and the management of their emotions.
Remember, your goal is not to fight the market, your goal is to take what is given, and repeat the process. Maintain the mind of thinking in probabilities. This will then free your mind of any impulsive behaviour and enforce the acceptance of the unknown.
Trade well My Friends
Tino…