What is it to “have a position” in Forex? Most traders take that to mean that they have an open trade. That is, they have some capital at risk.
While this may be the most literal meaning, I say otherwise. Having a position should translate to whether or not the market is producing a favorable setup. Not whether you have any open trades.
Thinking of the word, “position” in this way will help relieve you from any anxious tendencies when you have no open trades on the books. In fact you should come to embrace the idea of having no open trades as this is the safest place you can be as a trader.
If there isn’t a favorable trade setup present, then your position is that there isn’t currently a setup that’s worth your hard-earned money. And that’s a perfectly valid position to take the majority of the time.
There are several ideas that come to mind which will help you adopt this type of mentality. Here are a few of my favorite.
Technical vs. Mentalthe chess game of the forex market
What if I told you that you probably know 90% of what’s technically required to become a profitable trader? Some of you reading this are perhaps at 100% or very close to it.
With this in mind, you may be wondering why you aren’t consistently profitable just yet. But notice I said, “technically”.
There’s a stark difference between technical knowledge and mental fortitude; and you need both to become consistently profitable. The truth is that most traders only focus on the technical side of things. After all it’s the most exciting part of trading.
But what makes trading difficult isn’t discerning an uptrend from a downtrend, or a head and shoulders pattern from a double top. What’s difficult is getting your mental game to a point where you can be 100% comfortable knowing that you don’t have to be in a trade at all times. If you’ve been trading for any length of time, you know that this is harder than it sounds.
In order to become a profitable trader you have to start thinking like a profitable trader. And knowing that having no position is having a position is a great place to start.
A Common MisconceptionThere are many misconceptions when it comes to trading Forex, however there is one that stands out from the crowd. It’s the one that’s most responsible for over-trading.
Which one am I referring to? The misconception that in order to make money, you have to trade.
Now I’m not saying that you can make money without being in a trade and putting some money at risk. We all know that you need to take some risk to reap the rewards of trading. But becoming profitable isn’t about being in the market, it’s about being in the market at the right price and time.
So perhaps the saying is better stated as, “you have to trade at the right price and time to make money”.
Anyone can be “in the market”. All it takes is a computer, a trading platform and a finger to press a button. That isn’t what makes a profitable trader. What makes a profitable trader is a keen understanding of the importance of patience, which is what allows you to be in the market at the right price and time.
becoming a patient trader
But it isn’t enough to know that you need to be patient. It isn’t even enough to be patient. You have to develop a mindset that welcomes patience and doing nothing. Because when you have no open positions, you can’t lose money. And if you aren’t losing money then you’re doing your first job as a trader, which is to protect your capital.
The ability to put on trades doesn’t make you a trader; anyone can do that. What makes you a trader is having the mental fortitude to know when and where to place trades.
Always remember that it isn’t about being in the market. It’s about being in the market at the right price and time. By understanding that having no position is a good thing, you will be able to better protect your capital by avoiding subpar trade setups, thus putting you one step closer to becoming consistently profitable.
Quality Over QuantityAll of this sounds great, but what does it all come down to? What’s the best way to convince yourself that having no position is having a position and that patience is key to your success?
The very best way is to understand that it doesn’t take 20 trades per month to make consistent, sizable gains. In fact it doesn’t even take 10 trades per month.
When you’re using a proper risk to reward ratio, you really only need a few “A+” trade setups per month to make a considerable return. These are the setups that include all of the confluence factors. This is true even when trading the higher time frames.
Let’s take a look at a case study to illustrate the power of trading quality over quantity combined with a proper risk to reward ratio. The chart below shows a string of trades that a trader took over the course of a month.
Trade Win/Loss %
1 Win +4%
2 Loss -2%
3 Win +6%
4 Loss -2%
5 Win +2%
The trader placed a total of 5 trades, which included 3 wins and 2 losses (60% win rate). The first trade was a 2R, the third trade was a 3R and the fifth trade was only a 1R. Although you should always try to shoot for at least 2R, there will be cases where you can only squeeze out 1R before the market stalls or reverses.
The losses above are consistent at 2%. This means that the trader was risking 2% on each trade. Of course I always recommend using a percentage and dollar amount when defining risk. However for this example we’ll use a simple 2% rule.
The result is an 8% profit in one month on just 5 trades while only risking 2% each time. That’s just about one trade per week. Without seeing the chart above, the majority of traders would feel that one trade per week isn’t enough to make a sizable return.
I don’t know about you, but I’m more than willing to take an 8% gain and call it “sizable” any time.
The point is this – feel confident when you have no position knowing that all it takes is a handful of A+ trade setups each month to make consistent, sizable gains. There’s no need to feel like you have to be in the market at all times.
SummaryJust remember that above all else, having no position is having a position. Even if you aren’t in a trade, you still have a position. Your position is that the market isn’t currently producing anything worth your hard-earned money.
This is the most important position you can have in the Forex market. After all, your first job as a trader is to protect your capital, making money comes second.
