Forex Trading Tips: Controlling Lady Luck

Controlling Lady Luck

Let’ s face it this past Thursday’s EUR/JPY long was the luckiest trade in the world. Not only were we wrong on the European data which printed much worse than anyone imagined but the market that night was very jittery after the news that Mitsubishi was suspending work on the Dubai subway for lack of payment. Risk aversion was on the rise yen was gaining and it looked like we were on the way to another stop out.

But then the trading gods threw us a bone. The brand new and totally inexperienced Japanese Finance Minister Naoto Kao blurted out that he wanted to see a weaker yen and EUR/JPY bolted out of the gate like a filly at the Kentucky derby. In the end we were able to bank 100 points from the trade, but while the setup turned out lucky our profits were anything but.

Trade financial markets for more than a week and you quickly realize at how finicky and temperamental they can be. One of our readers noted that, “The market is only a procession of 'now moments’ “. A sentiment I wholeheartedly believe. That’s why you have to accept the fact that whenever you trade you can get rolled by something totally unexpected. Trade long enough and you begin to understand that you cannot control your wins. You can only manage you losses.

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This principle applies as much to banking profits as it does to taking stops. When you are ahead on the trade all you can do is determine how much you are willing lose off you peak profit position. Since you can never know ahead of time how far in the money the trade will go, all you can do is lock in profits along the way.

The best traders I know always scale out of their positions because they understand that trading is always the art of the probable rather than the domain of the certain. What makes trading so difficult for us is that it is much more like the invisible universe of quantum mechanics rather than the solid predictable world Newtonian physics we experience every day. We simply cannot “engineer” our way to profits in trading. The best we can do is try to contain risk one pip at a time.

At BK we always trail our stops and as result were able to capture a large portion of the EUR/JPY move before markets turned their attention elsewhere and the “procession of now moments” moved on. So while markets are chuck full of luck, trading them requires the steely discipline of a mercenary who leaves nothing to chance.

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