Forex Trading Tip: A Better Mistake

For a period of time, I was teaching myself how to make a good linguine Aglio E Olio.

As a fan of both stoic philosophy and pasta, I am constantly amazed at how such a simple dish can be so delicious. If I had to choose only one thing to eat for the rest of my life, this would probably be it.

But as you know, just because something is simple, doesn’t mean it’s easy to do.

Since there are few ingredients involved (olive oil, garlic, chilli, salt, pepper, herbs), the manner in which the dish is prepared is crucial.

If the pasta is cooked for even a minute too long, it becomes too soft. If the garlic is cooked at too high a temperature, it quickly turns black and tastes bitter.

In particular, I found that I often screwed up by adding too much salt. For some reason, I had the tendency to overestimate the amount needed.

And since cooking was a form of leisure, and I didn’t want to spend time measuring the exact amount of salt to be using each time. I wanted to do it by “feel”.

The problem was, my “feel” for cooking was terrible.

A Lesson From Mom

One day, as I was preparing lunch over at my parents’ house, mom came into the kitchen and saw me deliberating over a jar of salt.

“Just add a little bit first,” she said.

“If you add too much right away, you can’t remove it later, and you’ll ruin the dish. If you use just a little salt first and later find that you need more, you can always add more then.”

She then walked over to the sink, washed her hands, and walked out of the kitchen, finally adding, “It’s better to make a mistake by adding too little, than by adding too much.”

..

.

I looked at her, stunned for a moment.

She was absolutely right.

With all the time I’ve spent thinking about trading philosophy, you’d think that I’d have already thought of this…

After all, the same principle applies to trading.

Test The Waters, Don’t Just Jump In

Every time I take a position in the market, I’ll first do so with a small token lot size.

This way, if I’m wrong, the situation can be easily (and cheaply) remedied.

If however, I enter on a full lot size right at the beginning and something goes wrong, it’ll be a lot more difficult (and expensive) to “save” the trade.

Unfortunately, this is exactly what many retail traders do. They enter a trade with the entire lot size straight up, and then proceed to set the stop loss 20-pips below it.

And when things go wrong, they end up taking the full loss.

Their operating philosophy is: “I know where the market is going to move after my entry”.

Well… their trading results will be the judge of that.

Entering The Market With A Token Lot Size

By first entering the market with a small lot size, you take the pressure off having to be right, right off the bat.

If the market price goes against you, you can step back and re-analyze the situation. You then have the option to add on to your position at a better (average) price, or to alter your view of the market.

Compare this to a situation where you’ve taken a full position right away. If prices move against you, you’re stuck with the trade with no other options than to wait, or close the trade immediately for a loss.

And what if the market price goes in your favor?

Well then, in the wise words of mom, “you can always add more then”.

By |2019-04-24T14:42:13+00:00April 21st, 2019|How To, Philosophy|8 Comments

8 Comments

  1. antonio May 27, 2015 at 5:29 pm - Reply

    Hi Chris, I love this post, I love too the linguine aglio, olio e peperoncino.
    If you have a chance to visit the country of pasta (my lost country) you will discover many other delicious pasta dishes, especially if you taste them with a nice glass of one of our thousands wines.
    I am sure you will get more inspirations that we traders will benefit.
    Your mom recommendation is very simple and wise
    Thanks,
    Antonio

    • Chris Lee May 28, 2015 at 5:11 am - Reply

      Oh yes, definitely… I’d probably be spending most of my time eating when I get there!

  2. Gary May 27, 2015 at 11:00 pm - Reply

    Great advice Chris!

    I’ve been implementing this strategy for years. I’m one to go in with what I call a (foot soldier) 1st, & if all looks good I start scaling in with additional orders. 🙂

    • Chris Lee May 28, 2015 at 5:14 am - Reply

      Sounds like you have a good plan. 🙂

  3. Berthram May 28, 2015 at 10:08 pm - Reply

    Chris,
    You are a blessing to the trading operators.I count my self and all those following you blessed.
    You are a sure blessing to me. I do not know of others. Please keep it up. Sound trading advice.

    • Chris Lee May 29, 2015 at 1:09 am - Reply

      Thank you, I appreciate your kind words.

  4. paul June 30, 2015 at 12:14 am - Reply

    Hi Chris,
    Your blog is quite awesome, I’ve also read your book and was well written and full of interesting thoughts on trading.
    I also believe it can be useful to enter a token position however, in my case, I try to have a precise set of rules on all kind of trades, so I don’t leave my decisions to how I feel at the precise moment I decide to enter the markets.

    • Chris Lee June 30, 2015 at 4:35 am - Reply

      Hi Paul, thanks for the comment. I certainly agree with you on not trading according to “feeling”… I’ve done that many times in the past and it doesn’t work (at least, for me).

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