The point is that from our own individual perspective as observers of the market, anything can happen, and it takes only one trader to do it. This is the hard, cold reality of trading that only the very best traders have embraced and accepted with no internal conflict. How do I know this? Because only the best traders consistently pre-define their risks before entering a trade. Only the best traders cut their losses without reservation or hesitation when the market tells them the trade isn’t working. And only the best traders have an organized, systematic, money-management regimen for taking profits when the market goes in the direction of their trade.
Not predefining your risk, not cutting your losses, or not systematically taking profits are three of the most common—and usually the most costly—trading errors you can make. Only the best traders have eliminated these errors from their trading. At some point in their careers, they learned to believe without a shred of doubt that anything can happen, and to always account for what they don’t know, for the unexpected.
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The point is that from our own individual perspective as observers of the market, anything can happen, and it takes only one trader to do it. This is the hard, cold reality of trading that only the very best traders have embraced and accepted with no internal conflict. How do I know this? Because only the best traders consistently pre-define their risks before entering a trade. Only the best traders cut their losses without reservation or hesitation when the market tells them the trade isn’t working. And only the best traders have an organized, systematic, money-management regimen for taking profits when the market goes in the direction of their trade."Maintaining Sanity in a Schizophrenic Market"
The current market seems to be manic depressive without even a shred of memory from one day to the next. How does a trader preserve control and commitment when faced with this challenge?
I think the first place to begin is with the questions we ask ourselves. Is there an opportunity here? Where is the opportunity now? How can I take advantage of this opportunity?
Then ask yourself, how do I deal with the volatility? Do I decrease size and stretch out the risk parameters? Do I increase size to take advantage of this extraordinary opportunity? Do I shorten or increase my time frames to increase my safety and profitability? As traders we are always faced with the dual needs to seize a significant opportunity and to preserve our capital. This balancing act is at the core of trading.
Of course, you need to address the underlying fundamentals. What are they? Are they becoming more so or less so? Are they changing or remaining the same?
Define the problems you are facing and redefine them. Einstein was asked how he would go about solving a problem if he only had 60 minutes in which to solve it. He answered that he would spend the first 59 minutes defining the problem. Once you’ve identified and defined the issues you’re facing, look for workable solutions. See problems as challenges not as threats. I always assume if there is a problem, there is a solution. Once you’ve found a solution, test it.
You need to sustain an optimistic outlook. This means not taking market conditions personally. Know that the difficulties will pass as well as the opportunities. You can learn from difficulties and let them go even as you learn from and utilize opportunities. Keep honing your skills and see the glass as more than half full. You can heal your trading by finding a way to understand evil even as you find a way to make the best of a situation. Any crisis can make you stronger if you don’t let it make you weaker.
So let’s go back to the original question. Where is the opportunity here and now, and how do you go about taking full advantage of it? When you find it, go for it. If you don’t find it, wait for it to develop, and carpe diem (seize the day).