TraderInterviews.com: Are you putting on trades before these announcements come out, or are you playing the reaction?
Derek: No, no, no, no, no. You’re gambling and throwing the dice up against the wall if you’re trying to do these things in front of the news releases. If that’s your style, then to go to Monaco or Vegas and have some fun while you’re doing it. I let the reports come out. Sometimes things act in a fundamentally rational way. Today would be a great example of things not acting fundamentally rational. My process is not ill. To take it in front of news for lack of better statements, take something in front of news, put you in a position where you’re predicting and forecasting. Predicting and forecasting, I think, should be avoided, and I think that is probably one of the biggest problems most traders face. I approach the market from an aspect of anticipating the possibility than reacting to the reality. Now, I say that, and I know it sounds really simple to say that, and everybody said, “Oh, I do that.” But the fact is most traders are so darn busy trying to predict the forecast that they don’t even notice what’s happening. To take a trade in front of a major news announcement, again, boils down to nothing more than relying on where you act, and I don’t think she’s said nice, so I refuse to rely on that as that’s not a strategy. That is simple gambling and not with my dollars.
TraderInterviews.com: All right. So, let’s give an example here. You said today is an example of a market not reacting rationally. So, how do you trade a market like that? What did you do today to make some money even though it wasn’t acting rationally?
Derek: Well, actually, today I would say that I didn’t really have a good outcome on the day, although�then discipline becomes…you’ll hit on my other patience and discipline becomes my hot tickets. I always say traders enter the market with fear, apprehension, and greed. And I say these are three sets of three, fear, apprehension and greed. They have to be replaced by patience, discipline, and consistency because trading is based on momentum, divergence, and trend. Today, we had both crude oil inventories to mount. Fundamentally, if you look at the crude oil, the expectations were inventories to be down showing that there’s been a demand. The demand would say, “Hey, inventories had to be replenished.” Oil prices will then go up because of that. If the oil prices are going up, then the dollar is going to go down and the exact opposite happened. In front of the news, the oil started coming down but then the dollar took the opposite reaction of what I would’ve assumed. Dollar and the yen have an inverse relationship to oil, and then the Canadian dollar has a correlated relationship with oil because they’re a seller, and the US and Japan are buyers. But today with the news announcement, one would’ve assumed and could’ve anticipated that he would’ve seen in the dollar CAD fair, I was assuming that the trade would start to move down. It did get the initial appearance that was exactly what was going to happen, so I did take a short transaction on the dollar CAD today and lost a little bit of money, so like 10.0530 range but then the discipline kicks in. I’m pretty admin about stops, and I’m not going to let something sit there making an excuse for a trade. So, before it reached the 50 level, I was out of the trade, lost I think 14 and a half pips and that’s just no big deal. Now, later on, we recovered and actually took the trade short. Later on, it did develop and made back more than I had lost but the two trades together, but the sum of the two trades together is nothing to ride home about if you will. Based on the recovery, it’s not making mistakes necessarily to recovery.
TraderInterviews.com: I like the fact that you brought up this initially that it was a losing trade at first, and then it comes back and then you were able to still stay with that strategy and make some money on it. If not, a lot anyway. But I think a lot of traders, even newer traders are right a lot of the times. They’re just not right at the right time. And so, what are your suggestions about how to fix that?
Derek: Now, see, that’s an excellent point, and you hit on something that’s almost like a pet peeve of mine because how many times and I think anybody who is going to listen to this conversation is going to say to themselves how many times have they actually said, “I should have bought when I sold and should have sold when I bought I would’ve made money.” I mean, I raise my hand. I’ve said that to myself, and we get frustrated like, “I’m always on the wrong side of the trade.” Well, that tells me two things. Number one, you identified something moving, OK, and it comes down to the entry. So, it’s a misnomer that you’re going to buy the bottom and sell at the top, or soar at the top and buy at the bottom. As a matter of fact, people will tell you they do that. Run from them. They’re lying. The fact is we’re not going to get it perfect, but we want to get close. I always your rules of trading are equivalent to horseshoes and hand grenades. You can get close and still be effective. So, I just need to be close. I don’t have to get it perfect, but I need to get close. However, if I’m outside that margin what I call close, then I’ve made a mistake, and that means you’re either going to be a little bit too early or a little bit too late. But if you’re lot a bit too early, or for most traders, because most traders are looking for too many things to line up, they need to plan to align, then they’re always too late. The herd is usually late. So by the time the average trader is getting in and this is going to sound cold, but by the time the average trader is getting in, I’m selling to them. I’m giving them part of my trade and I’m saying, “Thank you very much because the herd came in late, and I want to take advantage of that herd mentality.” So for the average trader out there saying, “How do I hone my skills?” You have to look at the trade. There is nothing to be gained by looking back at the things you did right. There is a tremendous amount to be learned by your mistakes. So you look back at that and say, “What was wrong here?” Were you too early and didn’t have the patience to sit it? You were just so early that it kept coming down, down, down, and it worked against you. And you got out, and ultimately, it worked or were you just tremendously late? I mean, I got to tell you, of all the things the trader can be doing wrong, honing that entry decision is one of the easiest things to correct. So, it doesn’t matter style. It doesn’t matter time of day. It doesn’t even matter financial instruments as far as I’m concerned. If you can get the entry right, we can sit here and talk all day long about where would exit and the styles and maybe the figure, the pivot, news, time of day. I could rattle off more than a dozen reasons you might exit a trade, but the entry regardless of time, person, risk tolerance, pair, currency, financial instrument, a great entry is just that, it’s a great entry. So your focus is to identify what you’re doing wrong in your entry and then modifying that behavior. That’s truly a long term key to success.
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