In this post

  • Trades of the week: (EUR/USD, USD/JPY, NZD/CAD, WTI)
  • Quote of the Week: Scoring a 1,000 run trade
  • Are Your Trades Making the Right Statements?

Trade of the Week

It’s been a little while since our last Nicholas’ Notes email. Hopefully, my last couple of million-hour-long YouTube videos have kept you busy in the meantime!

Since it’s our first email for a while, I wanted to give you a more in-depth trade breakdown. Instead of the usual text and screenshots, I’ve recorded a video for you.

There have been some amazing opportunities over the past couple of weeks. In this video, I’ll walk you through four trades I took, each of which I broke down in advance during my live trading sessions with our members.

If you want to learn how to execute precise trades like this for yourself, check out the Duomo Trader Development Program.

Quote of the Week

This famous quote from Jeff Bezos is about business, but it also perfectly illustrates a problem many traders cause themselves:

“We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”

— Jeff Bezos

Every time you open a trade, it has the potential to be a 1,000-run opportunity. Most of the time it won’t be, but every now and then you’ll catch a major move.

Unfortunately, most traders will never benefit from those moments.

They dream of catching a runaway trade that generates life-changing profits, but their over-cautious trade management restricts them to only the smallest gains.

There are two main culprits for this:

  • Setting a take profit level when entering the trade rather than using a context-based approach. If the move keeps going and going, it won’t matter - you’ll already be out.
  • Becoming overly reactive and cautious when a trade moves into profit. Any sign of a slight pullback against you and you take the money and run.

If you want the chance to ride huge opportunities in the markets, you have to trade in a way that allows it to happen. That often means overcoming loss aversion and sacrificing small profits for the potential of more.

Reflect on the actions you’re taking and the statements you’re making with them. When you move your stop loss, scale out, or exit the trade, what statement are you making about the next potential price moves and the probabilities of them?

Are Your Trades Making the Right Statements?

Most traders don’t realise it, but every action they take in the markets is making a statement.

To put it in a very basic way… If you’re analysing a market, you’re saying, “This is the best market for me to focus on right now.” Otherwise, why not analyse something else?

If you open a trade, you’re suggesting, “This is the best opportunity available to me.” Otherwise, why not take a different trade?

But here’s the problem… most traders don’t actually believe the statements they’re making. And this can lead to sub-optimal decisions.

Think about this scenario:

A trader has two open trades: one in profit, one in a loss. They need to close one to reduce exposure. Which one do they choose?

The disposition effect (a cognitive bias) shows us there’s a tendency for traders to close the profitable trade and hold onto the losing one.

But let’s break that down…

By closing the profitable trade, they’re making the statement: “The losing trade has a better expectancy from this point forward.”

Yet, if they weren’t already in these trades and had to pick one fresh, they probably wouldn’t choose the losing one. Their decision wasn’t driven by logic-it was driven by not wanting to bank a loss.

The same thing happens with traders that don’t accept losses. The position tanks and they think, “It’ll bounce back eventually.”

But their action makes a different statement: “This is the best place for my money right now. No better opportunities exist.”

Otherwise, why not close the position and take a better trade?

But do they actually believe that? Probably not.

Every decision you make in the market is a statement. This includes entering and exiting trades, where you place your stop loss, whether you scale in or scale out, and even doing nothing!

The question is, do your actions align with what you actually believe?

As you improve as a trader, two things should happen:

  • Your statements about the market become more accurate.
  • The gap between your beliefs and your actions gets smaller.

The best traders don’t just think clearly, they act correctly in alignment with those thoughts.

Which means, if you want to improve your trading, start by asking yourself: What am I really saying with this decision?