In this series titled Trading Truths To Learn Or Liquidate By, we hear from Patrick Munnelly, head of Prop Trading at Littlefishfx.com.
#2: Trading Tight and Go With The Flow
This week's instalment of Trading Truths will focus upon another core concept essential to building a lasting and successful trading career.
The essence of trading tight in its simplest form is the adherence to your plan for the trading session in front of you. It is the focused concentration that the successful trader is required to implement minute-by-minute, hour-by-hour as the trading session develops.Patrick Munnelly
In the inaugural Trading Truths we addressed a principle that can be a serious detriment if not the ultimate downfall of your trading career: the ‘need’ to trade. Resisting the urgency to engage the markets is part of the foundation of ‘trading tight’.
Trading tight really builds upon and encompasses the issues discussed in our first piece. So let's drill down into what I really mean by trading tight. It is a philosophy more than a principle, and if you can adopt it as your main mantra you will reap its rewards both psychologically and financially.
The essence of trading tight in its simplest form is the adherence to your plan for the trading session in front of you. It is the focused concentration that the successful trader is required to implement minute-by-minute, hour-by-hour as the trading session develops.
It is probably best characterized by the ability to maintain a complete mental state of ‘nowness’ solely focused on the task at hand. It is about observing yourself to the point that when you recognize your mind wandering from boredom or excessive visual stimulation (the screens), you develop the ability to almost auto refocus immediately revisiting your plan for the session ahead removing unnecessary distraction.
How difficult is sitting watching your charts avoiding impulsive trades, hour after hour, session by session? The essential requirement is maintaining your discipline form start to finish, it is pointless sitting down to trade the London session with your trading plan and potential plays for the session mapped out, avoiding the pit falls for 99% of the session and then entering a reckless impulse trade in the last ten minutes that straight away goes south on you.
This one misplaced action can undo the whole session’s solid work and leave you at both a financial and psychological deficit. It is essential to grasp the notion that we don’t get paid for doing 90% of the job, showing up isn’t enough we must trade tight from the minute we turn the screens on to the minute we turn them off.
Get Off the Roller Coaster
One of the challenges to trading tight is the issue of the mental rewards you perceive or experience from trading. If you find trading a thrilling or exciting experience then you genuinely aren’t doing it right. The inexperienced trader mentally lives and dies by each trade. The minute they enter a trade they experience a heightened awareness, their heart starts to race and emotions rotate with price, every tick in their favour is euphoric, every tick against their position is a dagger driven into their very being.
This emotional roller coaster is the antithesis of the emotional experience experienced from trading tight. The trader who is trading tight is executing predefined plans with little to no emotional attachment to the immediate or ultimate outcome. The ultimate truth is that trading tight has a certain degree of predictability to it that makes it more of a routine experience than a roller coaster experience, and this is what every trader should really aspire to, when seeking to build a lasting and profitable career.
Go With The Flow
You need to realign to the realities of the game. In simple-to-grasp terms, it is better to think of trading tight like you think about driving your car. Initially when learning it is daunting, learning the core processes to operate the car and move around the roads safely. Once mastered, these processes become almost subconscious to a degree, but you still maintain a conscious awareness of the road ahead, while much of the navigation comes quite naturally. You are aware of changes in speed limits, in road conditions and in traffic congestion, the flow.
Trading has a similar type of flow to it. You sit down for each session aware of the data releases ahead, speed limits, you are aware of the major support and resistance levels other road users. You see cars changing lanes and adjust or speed accordingly, you see adjustments in price dynamics and adjust your perceptions accordingly, you don’t panic slam on the brakes and end up in a pile up.
You go with the flow always adhering to your plan, staying in each now moment. It is generally those drivers who drive against the flow who end up in accidents. It is the same in trading, those trading against the market flow with erratic emotional responses who end up taking the big dents to their accounts.
So, as you head into the next trading week, try to adopt the philosophy of trading tight. Plan your next trading session, feel the market flow and move with it. Get off the emotional roller coaster and trade more as an experienced driver than a ‘joy’ rider!