Successful Trading Is Managing Uncertainty

When you are trading the ‘Hard Right Edge’ of the chart on whatever timeframe, you must always try to ‘Manage Uncertainty’.  What do I mean and how do you do you that?

gbpusd 4hr pot bear bat - 10 June 2015 - mwWhen you enter a trade, from that point onwards you do not know for sure what the market will do next and so all you can do is to try and manage that uncertainty by doing the following:

  • Firstly you can plan your trade and do ‘what if’ scenarios.
  • You can try and establish the Context of your trade within the various timeframes.
  • You can manage your Risk by altering your position size(s) to match your stop loss and the amount of trading capital you have.
  • You can place your Stop Loss beyond a technical level, which if hit by price means that your original trade hypothesis was wrong.
  • You can set pre-determined Take Profit orders.
  • You can move to Break Even at a time of your choice, taking your Risk off the table.
  • You can trail your Stop Loss at a suitable moment to an appropriate level.
  • You can close your trade at any time.

Apart from the above there is not a lot else you can do apart from consulting ‘Mystique Meg’, but if you do all the above you will at least stand a reasonable chance of having a successful trade and less of an emotional roller coaster.

The more effort you put into the planning stage, looking for market confluences or sweet spots, the higher the probability of having a successful trade. Plus you can exercise patience to be able to wait for the best trades to come to you rather than trying to force the market when it is not ready to give you profits.

The more robust your’ Risk and Money Management is the longer you will last in the trading game.

Always try and take some profit off the table when the market gives it to you, don’t be too greedy as the market has a nasty habit of taking it back, and your previous winning trade can easily become a losing one. If you place profit taking limit orders when you enter the trade, then the decision has been made and you won’t be umming and aarrghing at the critical moment!

Practice and experience will tell you when the best time to move to break even is, but when learning, if you have hit your first profit target then that may be a suitable moment or after your entry has been tested by price, or price has clearly moved beyond the most recent high or low. You can trail your stop loss if well into profit, I like to wait for a pullback on the next higher timeframe to the one I am trading on and place it just beyond that.
Sometimes when you realise that you have got it wrong it can be prudent to just close out your trade for a smaller loss.  Similarly if you can see that momentum has failed despite reaching one or several of your profit targets then you need to close the trade before you start giving all your hard won profits back.

Top Trading Tip:  Have a think about how you are Managing Uncertainty and what you can do to improve the odds of having a successful trade.  Being good at Managing Uncertainty should help to tip the balance in your favour and add to your edge whilst helping to control your emotions.

If you would like further help then take a look at our Personal Mentorship Programme where we provide bespoke one on one online training.