The Good Ones Are The Hardest Trades To Take

I don’t think I am revealing anything new to any of you when I say that human psychology is a major hurdle to overcome when considering to trade for a living. The sheer mechanics of trading are fairly easy to acquire – read a few books – stick around for a year or two and you probably have a good lock on the basics. However, as with so many things in life, mastering the process may take you a decade, perhaps a lifetime. Most who come here give up long long before that. The trick lies in sticking it out – recognizing and addressing personal weaknesses – and setting the right priorities.

Successful trading is 40% risk control and 60% self-control. In turn, the risk control portion is one half money management and one half market analysis. Thus, market analysis is only about 20% of successful trading. Yet most traders emphasize market analysis (i.e. the easy part) while avoiding self-control and de-emphasizing risk control (i.e. discipline). To become successful, traders need to invert their priorities.

You will find that the hardest trades you take – specifically the ones that satisfy your system rules but are emotionally stressful – may often turn out the ones that make your entire year. I don’t know what it is but the really good looking ones often pan out but they rarely turn into big winners. Don’t get me wrong, we regularly run into easy victims that just look right and wind up banking us some coin. But some of our biggest winners wound up to be the ones where I thought to myself: “I really don’t want to take this trade but the system is the system – so shut up and do what you gotta do.”

Looking at the spoos right now I have to admit that this is exactly the sentiment I’ve felt this morning. Yes, the rules were clear in that we had a triggered hammer long – all the pieces were in place. But just looking at the tape – the lack of participation – the intra-day gyrations as of late – I really didn’t want to take it. Now, I can’t promise you that this one is going to pan out. But I usually make a mental note of how I feel when taking a trade. And this one is definitely a good example of the ‘holding your nose and pulling the trigger’ variety.

Anyway, based on this morning’s breach we’re supposed to be long with a stop below yesterday’s lows. I think a breach above that NLBL at SPX 1775.22 would be confirmation that we’re on the right track. Until then we probably remain stuck in this limbo from hell. Take the trade and let your stop do the talking – until then do like Tony Soprano and fuggedaboudit.

For my intrepid subs I’ve got two very cool long term FX setups today. Please grab your secret decoder right and step into my lair:

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Cheers,