• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Trading Heroes

Trading Heroes

Forex Trading Education

  • Articles
  • Products
  • About
  • Resources
  • Login

The Only Question You Should Ask Yourself Before Taking A Trade

Home / Trading Psychology / The Only Question You Should Ask Yourself Before Taking A Trade

Last updated: August 11, 2022
By Hugh Kimura

Successful discretionary trading is supposed to be black and white…but it isn't.  That is half the challenge (and the fun).  There is a constant battle between the “Spring Break/Girls Gone Wild” part of your brain that wants to risk half your account on one trade while drinking a Tequila shot and the other part that will make you start acting like Adrian Monk and not take any trades at all.

So what is the best way to meet in the middle when taking a trade?  I have found that asking one simple question helps me a lot.  Nothing is foolproof of course, but it does cut through a lot of the emotion and anxiety.

The question is…

“Do I have an advantage? “

Duh.

Yes, it may seem idiotically simple now, but how many times have you been caught up in the moment and taken an impulsive trade?  Don't worry, I'm not judging…I'll bet that I have done that twice as many times as you have.

This question reminds me to do a quick logic check and see if this current setup will give me an edge.  Doing this not only keeps me out of stupid, impulsive trades, but it will also force me to take trades that I may be apprehensive to take (for whatever reason).

Missing out on profit can be just as bad as getting into a crap trade.

RELATED: The Best Trading Psychology Books of All-Time

An Example

Here is a chart from a couple of days ago where I kept myself from taking a bad trade by asking this simple question.  This is the exact point in time where I had to make the decision of “go” or “no go.”

EURUSD-trade-1
“…but I can still get in…”

This is a 1 hour EURUSD chart, trading the Wallaby method.  I identify an advantage in this trade when price and the Wallaby indicator (red) become divergent and Stochastics (blue and yellow) are at an extreme.

In this case, my maximum advantage would be when the Stochastics are as close to the top of the range as possible and the yellow line has crossed over the blue line, with good separation between the two.  As you can see, it has already moved down through most of the range and is actually starting to turn back up again.

Price has also almost hit the first profit target of support, which means that it will be harder to make any profit from there.

It would have been easy to justify taking this trade and if I'm honest, I did hover over the Sell button for about half a second.  But then I asked myself the question and the answer was “NO.”  My advantage was gone and there was no reason to take the trade.

Even at optimal entry, shown in the chart below, price was too far gone and the easy (er) money was already off the table.

EURUSD-trade-2
The first profit target is almost hit.

After 1,000+ backtesting trades in this pair, I understand what to look for and I know when I have an edge.  That doesn't mean that I am immune from taking a bad trade or taking a loss, it simply means that I understand the trade and am less likely to do so.

How did this trade turn out?  It would have been profitable.  🙂  But I'll take the odds over 20/20 hindsight any day of the week.

If you don't know how to identify an edge in the market, then you have bigger problems.  Get to work stress testing your method and learn to spot a good opportunity.  It is hard work, but it is worth it.

Related Articles

  • Attract wealthA 90 Day Experiment In Reprogramming Wealth Awareness
  • Happy traderHow to Create a Rewards System to Achieve Your Trading Goals
  • Motorcycle Silodrome3 Ways the Trading Silodrome is Killing Your Profits
  • Ask more questions5 Questions You Should Ask Yourself Immediately After a Loss to Minimize Its Psy...
  • 2 Traders7 Reasons Traders Can See the Same Chart Differently
  • Trading ideas3 Easy Ways to Tell if You Have Great Trading Ideas (without risking money)
  • Happy boyIf Your Trading Sucks, It’s Not Your Fault. Here's Why.
  • The 3 Most Underrated Trading Psychology BooksThe 3 Most Underrated Trading Psychology Books

Category: Trading Psychology Tag: Mental Awareness

About Hugh Kimura

Hi, I'm Hugh. I'm an independent trader, educator and researcher. I used to work at a hedge fund and the largest bank in Hawaii. Now I help traders optimize their trading psychology and trading strategies. Learn more about me here.

Nobody understand everything. Double check your assumptions. Double check others.
Nobody understand everything. Double check your assumptions. Double check others.

Primary Sidebar

Trading Guides

The Ultimate Beginner’s Guide to Forex Backtesting

How to Figure Out Your Trader Personality Profile

The Forward Testing Guide for Beginners

How to Create a Precise Trading Plan (with PDF worksheet)

Learn the weird trading method that doesn't use stop losses...

Forex Hedging Guide
FREE Guide
Download Now

Footer

Company

  • Trading Courses and Education
  • Trading Blog
  • About
  • Contact
  • Beware of Imposters

Community

  • YouTube
  • Twitter
  • Instagram
  • Facebook

Tutorials & Guides

  • Best Trading Resources
  • Free Forex Trading Course for Beginners
  • Free Backtesting Guide for Beginners
  • Trader Personality Profile
  • Best Trading Books

Articles

  • Backtesting
  • Podcast
  • Trader Life
  • Trading Psychology
  • Trading Software Tutorials
  • Trading Strategies

Trading involves risk and can result in the loss of your investment. Invest at your own risk. Past performance does not guarantee future results. All information on this site is for informational purposes only and is not trading, investment, tax or health advice. The reader bears responsibility for his/her own investment research and decisions. Seek the advice of a qualified finance professional before making any investment and do your own research to understand all risks before investing or trading. TrueLiving Media LLC and Hugh Kimura accept no liability whatsoever for any direct or consequential loss arising from any use of this information. You are 100% responsible for your losses...and gains. You are more powerful than you know, keep expanding.

 

Copyright © 2007–2023 TrueLiving Media LLC | Terms | Privacy | Risk

Learn Zen8 Forex Hedging

Hedging can be a low-stress and consistent way to trade. Enter your email and I'll send you the FREE guide. 

x