Thursday, April 23, 2015

A Fresh View

I have often seen traders experience a nice winning streak that resulted from skillful analysis and well-planned trades. Then, the same mind decides that, because they have now made a nice profit from a series of winning trades, they are quite a good trader and arrive at a decision to now enter a trade into a low probability environment. This is not entirely objectionable under the right circumstances, but it would be wise to use an adjusted equity management parameter based on the profitable period and the probability of the current trade.
Whether a trader has experienced an extensive winning streak, losing streak, or has taken a single win or loss on recent trades, you must always take a fresh, objective and unbiased view of the current market condition. Remember, the shift in probabilities can move very discretely, so do not allow an emotional attachment to recent trade success/failure cloud your view to what the market is really saying.
A trader can become emotionally charged following a string of successful trades. I find it very helpful to stand aside for a while to allow my charged emotional state of mind to settle down, so it does not alter my view on the next trade. This does not only refer to a fresh view directed specifically to the market, but also the most critical component of trading… equity management. A fresh view will reel back into reality your overall equity status, as well as current market environment and price action.
This emotional charge can also generate a subconscious bias. If you bring to the market a strong bias or specific expectation, whether consciously or subconsciously, rather than taking an objective view, you will be exposed to a potentially dangerous experience.

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