Sit on your hands – Discipline in Forex Trading
The most simple but hardest strategy to stick by: Sit on your hands until you are confident the trade is sound and all of your strategy checkboxes has been all been checked. The unexperienced trader will think this strategy is not even a strategy and think that of course should a trade only be done, when it has been cleared and checks all checkboxes in the primary strategy. The experienced trader will nod and know that this is really the hardest part of trading: To stick with your strategy and exercise discipline.
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Through our years of trading we’ve placed rapid spot orders based on, for the market, irrelevant news, weak technical indicators or without considering the full picture and this has been the single, most costly mistake of all. Therefore, this addition to your primary strategy is as important as the actual strategy: Trade strictly but firmly when and only when all checkboxes has been checked for the trade to live up to your strategy.
Even though it seems simple it is quite difficult in real life. The obvious way to begin is by making a physical paper with checkboxes and check them before commencing the trade. However, in real life this might not be speedy enough in all instances, such as when the FED delivers data and speeches. In such cases you must instead prepare. In reality that can be as simply as a handwritten note that indicates on what trades to execute in different cases. If we take a FED rate decision and Powell’s.
Implement discipline in your Forex Trading
- The market is moving 24/7 so we recommend a routine that keeps you updated with the latest macro and market news. Obvious places to do so is via sources such as Bloomberg, MarketWatch and your personal sources, which your trading platform should be one of as it often contains a state of the art newscenter, which underscores news important for the markets and provides it fast and reliable from all credible sources.
- When you are updated in general it is time to find the best possible trades of the day and find out what tactics to apply. We find macro traders on Twitter, TradingView and a Forex Calendar with upcoming events useful for this. Make sure that what you select has a red line to what you found out in step 1. This is really important as you might find an event or influencers opinion significant but if the market don’t or the trend is opposite of what your trade should be based on events or influencers opinion. As an example, you might have read on Bloomberg that focus today is on BoE‘s rate decision and the general trend currently is that the GBP is increasing in value. Your influencer is on the other side focused might be focused on “Jobless Claims” from USA and suggest you go long USDGBP if the jobless claims are higher than expected as US yields and USDGBP then should rise. But almost at the same time BoE comes out with a rate hike at 100 bps vs. expected 75 bps. As the trend already is up for GDP, technical signals indicates up and the macro new pushes up you should be long GBPUSD and not short as you might have been, if you had skipped step 1.
- Be sure to know your trades resistance and support levels and the normal patterns of the instrument. Through technical analysis and signals, which often can be obtained from your trading platform, you can get an overview of resistance and support levels. This is important as other and especially institutional traders are having those in mind when trading. Let’s says GBPUSD is at 1,1042 and you expect the BoE event to add 0,0150 to it, so limit might be: 1,1192. However you know that there are resistance at 1,1170. Then it might make sense to place the limit order at 1,1165. If it has power to break through resistance it will often retrace before then and you can obtain a better long position in this way. Is resistance fierce it might be worth to short to possibly gain some extra profit on the move. Make sure to prepare and decide calmly hours before the action begins.
Summary
To sum up “sit on your hands” is the most important lesson you should apply on your very first trade and not after three years, such as we have done. Our profits would have been more than 1000 % higher had we done so.
Example of a “sit on your hands” checklist:
Does the trade follow the general flow of the market (part 1, e.g. Bloomberg)?
Does the trade have technical indicators that supports your trade?
Are you trading on the most significant macro news pulling in the same direction as point 1 and 2?
Do you know the instrument that you are trading and its resistance and support levels?
Have you decided and placed a limit and stop order?
Is volatility high did you adjust your order size to e.g. 50 % of initial margin instead of going all in making it possible to increase your stop by 100 %?
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