Making The Tough Calls

30 Apr 2015 01:05 BST · Time Estimate: 4 minutes ·

WIPED OUT - So I am wiped out today. It's been a bit of a crazy week and there has been a lot of volatility. On the whole, it has been very good for my book, though I took a couple of unsuccessful shots trying to buy the Buck over the past couple of days. With each trade, I waited for my level and with each trade the level triggered and the trade was filled. I sold GBPUSD, AUDUSD and EURUSD, and all three failed to produce any follow through. But with each of these trades, I was fine taking a bit of a loss, as I had nothing to complain about. I was looking to buy the Dollar following a period of significant corrective weakness, and each time, I took advantage of some severely stretched intraday moves to isolate my entries. But as we all know, the Dollar wasn't ready to relent and so I took my loss and stepped aside. On the bright side, AUDNZD has continued to look promising and the long could finally be ready to run, while the SPX500 short is also showing signs of promise.

DOESN'T FEEL RIGHT - Now, I want to go back to trading and risk management and talk about something that is very hard to do, but will help define you as a trader. Sometimes we take a trade that looks fantastic. We see the level we want. The market comes right up to that level and gives us the trade. Everything according to plan and everything going great. But then, right out of the box, the trade goes south much quicker than anticipated. While the trade is still within your risk parameters and has not threatened your stop-loss, you also can't help the fact that something just doesn't feel right anymore. Maybe it's a gut reaction. Maybe its because you see something happen you don't like. Whatever the reason, even though the trade is open and not threatening your stop-loss, you just don't feel right about it. So what to do? Well, I strongly believe that if you don't feel the same way about the trade as when you entered the position, you need to consider getting out of the position.

EXAMPLE - Sometimes this is a very challenging thing to do. As an example, just yesterday I sold EURUSD at 1.1085 post US GDP and pre Fed. The market opened the day way lower at 1.0980 and I thought that if we saw a sharp push pre Fed, there could be a nice opportunity to fade the move. And so, I did some analysis and picked 1.1085 as my level to sell a Euro rally on Tuesday pre FOMC. If the market didn't get there, I wouldn't take the trade. But to my amazement, the market did get there pre FOMC, and so I took the trade and sold 1.1085 as per the plan. But from the moment the trade was initiated, the position was against me and continued move against me right up to the FOMC decision. At this point, I just wasn't liking the price action. I found it strange that the Dollar could be so well offered and sit at the days low even ahead of the Fed rate decision.

Good trading is about knowing how to take a loss. Via @joelkruger

A HARD EXIT - Normally, you might see some profit taking before event risk on the uncertainty of the event outcome. But with this trade, there was nothing. The market held its firm ground into the event. And so, with the trade no longer feeling right to me, as hard as it was, and as much as I knew a pullback was imminent, I exited the trade out of fear for what could be if the decision came out on the more dovish side. It seemed anything was possible at that moment and I decided the best and most responsible course of action would be to simply take a loss and exit. I knew very well the trade had a good shot at working out. But at the same time, I wasn't going to risk too much given all the uncertainty. I would advise that you employ the same tactic. If you find yourself in a trade and at some point it no longer feels right, go ahead and exit. You need to have a strong mind to trade, and these are the types of tough decisions that will ultimately benefit you in your trading and define your success.

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