Preserve Your Capital- Trade and Mental

Posted by Victor Adair for Moneytalks

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I constantly jot down trading ideas….anticipating what may happen in a particular market, and why. Each trading idea has a time frame within which I expect it to play out and that time frame is very important in determining how or when to make the trade.

For instance, if my trade idea is to sell the AUD short because I think it’s run up too far on the “China growth” story, then the time frame implies that NOW may not be the best time to initiate a short position….the time frame on that trade idea is a month-to-month time frame and if the trade starts to work then the AUD could fall for months….NOW…this moment…may not be the best time to initiate the trade because the AUD could rally a few cents from present levels just on “noise” and yet still be within the parameters of that short AUD trade idea….meanwhile, I’ll be increasingly uncomfortable if I’m holding a losing short position!

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