Having the correct presence of mind for any task or endeavor that we undertake is critical to achieving success. As Henry Ford once said: "If you think you can do a thing, or think you can't do a thing; you're right."

Like this, all of the videos and blog posts I do deal with you as a person trading in the FOREX market as opposed to the market itself. The market just doesn't exist without you, but you can exist without the market. Realize how important you are over that of the market.

It's your money that's at stake, not the market's. If you don't have the correct presence of mind when you hit the bid or ask button on your trading platform you're subjecting yourself to all of the negative probabilistic expectation that a Zero Sum Game has.

Given the state of confusion most educational resources put on students about loss in trading the FOREX market, and the so-called 'best practices' emphasis on risk (which most confuse us with by calling it a 'risk to reward ratio' as opposed to the true representation of what it's supposed to be as a 'reward to risk ratio'), it's no wonder that traders have an incorrect presence of mind when they pull up their trading platform on the computer screen.

Of note is that to this post, I have a companion video of the same title: Having The Correct FOREX Trading Presence of Mind that puts all of this together from a different view point.

If you've come from watching that video, then press on here. However, if this is your starting point, I might suggest that you read through this before watching the video. Or, if you want, you can skip to the bottom of this post to watch that video now.

I've been involved training in, and teaching martial arts, karate, and self defense since 1968. Presence of mind is everything. Every-thing. And not just in self defense, but in all of life.

I was a successful real estate investor for 40 years, and I'll tell you this: that's not a market you want to be in if you're mind is fogged with fear, trepidation, or uncertainty.

Most think of real estate as one of the 'safest' investments. I've seen folks lose not only their life savings, but their ability to have life savings after entering these markets with an incorrect presence of mind.

This is how I live my life, and what I teach — not only to my karate students, but in currency trading:

"Walk slowly and show no fear, and the demons will not not see you."
— Peter Rose

You may laugh, but consider the ramifications of showing fear. In anything.

'Walking slowly' implies risk mitigation. 'Showing no fear' is the resultant ability you have by successfully mitigating your risks.

That's what my quote implies. Write it down on an index card, and tape it to your bathroom mirror.

When you truly embrace the essence of what I'm saying, you can then lead your life — as I lead mine — according to the American Hopi Indian prayer:

"Seek the way to conduct our lives in friendship and peace, without anger, without greed, without wickedness of any kind, among ourselves or in our association with any people."
— American Hopi Indian prayer

You can't do that if you have fear.

Fear is caused by the unknown. In trading, we eliminate fear through risk mitigation.

But risk mitigation isn't difficult! It's not only simple, but it's e-a-s-y.

If you can make your risk mitigation easy, then you'd do it. It's only when we think something is difficult that it becomes difficult. It's just like Henry Ford said: "If you think you can do a thing, or think you can't do a thing; you're right."

The way I make risk mitigation easy is to simply exit a position when it runs 8 pips against me.

That's it. That's my risk mitigation.

The technicians are screaming right now: "But what does 8 pips have to do with anything? There's no corroborating structure. There's no confluence of indicators. Nothing...."

Yup. That's exactly true. 100%. 8 pips has absolutely nothing to do with anything.

Except... Because I'm a short term trader with profit targets of 25 to 30 pips, 8 pips is enough to show me that I may — may — have been wrong in my trade entry analysis.

So, I just get out. If I got out prematurely, I can always reenter. What's the big deal?

Well, there is a big deal.

By having a simple, and easy to implement rule of exiting a position that runs 8 pips against me: I... have... no... fear.

I have the proper presence of mind to trade by not fearing what my loss could be. I've quantified that loss to 8 pips.

That's as bad as it can get for me. 8 pips. That's it.

I'm not afraid of losing 8 pips. Why? Because I know that in the long run, even if I'm a shitty win to loss ratio of 1 in 3, 33% trader, I'm going to come out just fine.

And because of this — this not having any fear — I can focus on achieving the reward structure is offering me.

That's having the proper presence of mind to trade.

It's that simple.

Really.

What if you trade on a longer time frame? 8 pips really isn't much runway to give price to mash around as it works its way toward your profit target maybe 100 pips away. So, what could you do?

Well, if you're win to loss ratio is 33%, then on an 'average' profit target of 100 pips, you might consider a 30 pip stop. 2 losses would give you 60 pips of losses, and that 1 winner of 100 pips would give you a 40 pip profit, or about 13 pips per trade.

Is a 40 pip profit worth the work it takes to run 3 trades out? Well, let's look at it.

If your profit target is 100 pips, I assume you're trading out on the daily where the ATR is running 80 to 120 pips a day. That sort of ranging may provide you with a trading opportunity maybe 1 time a week, let's say. So, let's further assume you can thus run those 3 trades out in 3 weeks time; make it a month on average just to be safe.

If you're trading a 1 full lot position with a $10,000 account size, then you've made $400, 4% on your bank for the month.

Well, that just sucks, you moan.... $400 a month? Really?

Yeah, but that's on a win to loss ratio of only 33%. And besides: A 4% per month simple gain (not even compounded) is an annualized return of 40% on your account with 2 months off.... Heck: 20% a year return and you're a super star. Put things into perspective.

Regardless of whether you agree with any of that analysis or not, the point of the exercise is to show how doing 1 very simple thing to your trading results in an enormous advantage of improving your trading presence of mind.

By quantifying your risk as a static function of the time frame you trade on, you effectively eliminate your fear of risk, which in turn changes your perception of trading to avoid risk to that of trading for profit.

Video: Having The Correct FOREX Trading Presence of Mind