In this episode of Truth About FX, Walter digs into probably one of the biggest mistake even professional traders make. Are mistakes made because of worrying about entering in the right direction or the inherent human need to always make the right decisions? Walter shares some sharp points on proper execution and avoid placing your trades in flames.

Download (Duration: 05:09 / 5.90 MB)

In This Episode:

00:31 – right direction

01:11 – horrible death

03:12 – basic framework

Tweetables:

You don’t have to be right [Click To Tweet].

Reassess your thoughts  [Click To Tweet].

Take advantage of when you are right [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. Somebody wrote in and they asked about entering a trade. They said they’re having trouble entering in the right direction. What do you have to say about that?

Walter: To me — and this is going to sound as a smart-ass answer — but I actually think that it is not the real issue here. I think the real issue is wanting to be right. Know that you can make a whole lot of money in the markets and people have done it literally for decades by being wrong more often than being right.

I would’ve kind of reassess that, for one thing. Now, there certainly are trading systems that enable you to be right more often than wrong and you can do that. The problem with those trading systems however is that you really have to be sharp in the execution side of things.

If you’re not very sharp on the execution side of things, then you will die a horrible death and you’re account will go up in flames. Here’s the thing, there’s a couple of ways to do it. This is what I would say.

Couple of ways to approach it. One is work on your beliefs about being right. You don’t have to be right more often than not. You just have to make a lot of money when you’re right, that’s number one.

Number two is it is possible to trade for a high win rate system. But, typically those are like the ones that have an inverse risk/reward so you might be risking $2 to make a $1.50 or maybe a $1 to make 80 cents or something like that.

What that means is if there’s any sort of a flop bop in your execution or if your psychology is a little bit off and you can easily get into a nasty drawdown because you’re not really making that much when you do win, so I would encourage you to reassess your thoughts about being right all the time.

Here’s one way to do it. You can flip a coin — I’ve been encouraging traders to do this for years but I actually heard this. We heard this at the Conference. I think Goncalo mentioned it. He said, “Flip a coin and take some trades and see if you can work your way out of them and make money.”

I’ve basically said a similar thing where I said, “Look, setup your risk/reward high like 4 to 1. Risk a $100 to make $400 and flip a coin in your entries and see if you can take 80, 90, 100 trades and see if that makes money for you.