Flexibility in trading has to be one of the most difficult concepts to master when going through the learning curve. I remember much earlier in my learning process when I was stubbornly committed to a particular trading style that I was learning from a chatroom that shall remain nameless. Looking back, the style was complete nonsense but at the time I was convinced it was the way to go. So I would take signals and be losing all over the place.
For example, the trend may be up and I would be taking short signals simply because they appear. After getting stopped out many times, I would complain to my father that this technique is no good, meanwhile he would be long. Or he would have the ability to let the trade breath a bit. I would tell him he was breaking the rules, he would say it’s just being flexible. Flexible? What is the point of following these rules if you get break them? And when do you break them? It was very frustrating to say the least.
The reality is flexibility in trading comes with experience. Rules in trading are not hard and fast, they simply act as guidelines to steer your thinking and the market unfolds. This is why following strict rules leads to failure, even for algo traders. The rules needs to be monitored and adjusted regularly as market conditions change.
On top of that, if you are following rules of some kind of strategy that is based on irrelevant ideas related to the market, then you are already setup to fail. Before you apply rules, make sure the premise that your rules seek to identify makes sense.
When it comes to the methodology that we use at SMB, there are no strict sets of rules. There is only observing price action, extracting relevant information and then looking to validate setups at predetermined price areas. Once a trade is initiated, then management techniques act as a guide. We have criteria that help us define setups, trends and validation, but as an experienced speculator, these rules are just to help make sense of the unfolding data series offered by the market.
When being flexible, you are not adhering to any absolute ideas or opinions about the market. It doesn’t matter how sure you think you are, markets change fast. A central banker makes a comment and EUR/USD fires up 150 pips in 5 minutes, but before that it looked as if it were going to zero. In order maintain a flexible mindset, you must always accept new information as the market hands it to you. You must always be in the present while observing unfolding information in light of recent price action history.
Having a flexible mindset is more about being a passive listener than an aggressive imposer. You cannot impose your will on the market, it does not care what you think or feel. You must learn to operate as part of it’s flow, not against it and this not about trend following, it’s about being in harmony with the natural process of the market.
Being flexible will allow you to adjust to new information as it unfolds. This ability helps you maintain an open mind which in turn helps you interpret price action more effectively. What happens when you enter a trade and it is giving you a hard time? Is there any information that can help you exit that trade before it get’s stopped out for a loss? If you maintain a flexible mindset, a lot of the time, there is information present that can help you manage a trade much more effectively. This happens because you are making decisions based on pure market information, not irrelevant ideas, preconceived notions or opinions.
So are you flexible? Has this article helped you think of flexibility in a new way? I would love to hear your feedback on this topic. Please share your thoughts with the community.
Marc Principato, CMT,
*No Relevant Positions
I’ve been trading since 2003 and your comments on flexibility really resonated with me. So much trading literature talks about having discipline and “always” following your “rules”. That always seemed great, in theory, but limiting. I’ve found that my experience allows me to know when I should break (or bend) a “rule” because the market demands it. It means not stubbornly holding to a profit target when the pattern in the market changes, or adding extra size when you can feel the imbalance of fear and greed in the order flow but it’s not present on the chart. Those who believe that if they can just be disciplined and follow the rules and success will follow are setting themselves up for disappointment.
Also, your comments on being in harmony (or flow) with the market mirror how I feel about trading. Sometimes you just know what the market is doing and can make money trading both sides. This feeling can last days on rare occasions when the whole market is “in play” when that happens it’s our job to absolutely crush those times to cover the leaner times when we don’t have a great feel.
Jesse, thank you for the kind words and thoughtful comment. I am glad you have the ability to appreciate this point of view, of course you have 10 years of experience. Hopefully people with less experience will be able to appreciate this in a similar way. I really value your feedback. I understand how you feel about trading literature and always being so “strict” about everything. As we have learned that is not natural to the market. The market is not strict, it is organic and messy and we need to allow for this. I hope you also give me this quality feedback on the book I am writing. Thanks again.