“A wise person should have money in their head, but not in their heart.” – Jonathan Swift
“Where your treasure is, there your heart will be also.” – Jesus Christ
I’m going to talk about some trading strategy, but before doing that, I want us to think a bit about this journey we’re on. This kind of ties in, maybe a little bit anyway, with some of the things I wrote about in my introductory article on the psychology of trading. (So, if you haven’t already read that, you might want to take a look – click here.)
My mom’s funeral was yesterday, and tomorrow I’m moving into a new place, definitely starting a new chapter in my life. Do you think there’s enough stress in my life this week?
But today, this afternoon, I stepped outside (successfully procrastinating another few minutes before working on this), into a sunny afternoon, and the sun just felt, well, good, that’s all. I was grateful for that. I’m grateful for any smidgen of grace at this point.
What I wanted to talk about, wanted us to think about for a minute is this: What are we doing here? What are we seeking in this journey? Are we just after the million dollars? – Christ, I hope not. Money is just money – it doesn’t mean anything in and of itself. But the journey – this journey that we’re on – that contains meaning, significance. It’s important – or at least it can be if you choose to travel it in a meaningful way.
And it is indeed a journey. It’s not just an event, it’s an unfolding journey, along a path that’s only revealed step by step, day by day. Who knows where we’ll end up? It’s an adventure, if you want it to be.
Maybe it’s even a way back home.
What does it mean? – What’s it all about? I can’t answer that for you – only you can answer that. Because while in one way we’re on this journey together, in another way each of us is on his or her separate, private journey. I can tell you some of what it’s about for me. For one thing, it’s been awhile since I took on a really big challenge, since I tried to accomplish something big and notably difficult. Maybe I just want to see if I can still do that, if I can still work a little magic. Secondly, what makes it meaningful – worth doing – for me is the opportunity to help people. That’s my prayer every time I sit down here at my computer to write one of these articles – a very simple prayer: “Please, God, help me to say something that’s helpful to someone, that helps give them a better life.” So that’s at least part of what this journey is about for me.
(Also, I heard that forex trading is a great way to meet girls. No? Well that’s what they told me.)
What’s it about for you?
Despite sunny afternoons, I think that, overall, the world is becoming a pretty dark place. I know more unemployed people, poor people, and homeless people than I did 20 years ago; I know more divorced couples; I know more suicidal people, and more people who have been through things that would lead any rational person to consider suicide. I see more people walking around with just a kind of…haunted look in their eyes.
But despite all that, I remain, in the end, hopeful. Here’s what I believe: As long as there’s still time left on the clock (i.e., as long as you’re still alive), you still have a chance to be a winner at this game of life, still have a chance to get it right, still have a chance to find Shangri-La, still have a chance to live happily ever after. At the end of one of my favorite movies, “Windy City”, Kate Capshaw asks John Shea (a guy who’s lost the love of his life and watched his best friend die), “Do you still believe in happy endings?”, and he immediately smiles and firmly replies, “Absolutely”.
How about you? – Do you still believe in happy endings?
If you don’t know whether you do or not, it would behoove you to figure it out. Your basic beliefs and attitudes greatly influence how you trade and what type of trader you are likely to be, and those are key elements in trading psychology. The first step in improving yourself as a trader is an awareness of who you are as a trader right now.
All right, enough waxing philosophical – let’s talk about “The Hanging Man”. Because learning to recognize him is something that can definitely be helpful for you in your trading!
Dance Strategy Tip – Recognizing the Hanging Man Candle
The Hanging Man is a particular candle formation that often occurs, and that is often misleading to many traders. A classic hanging man candle is a candle with a long wick on one side (either the bottom or the top), and a short body, with no wick at all on the other side (or, at most a wick of just a pip or two). A hanging man candle can be misleading because it basically looks the same as a “hammer up” candle (although they give opposite signals). About the only difference is where it occurs on a chart in relation to previous price action. A hammer up occurs at the bottom of a downward move; the hanging man that resembles it occurs near the top of a move up. That is, the candles preceding it are usually candles where price has moved higher, whereas the opposite is true of the candles preceding a hammer up – they’re usually taking the market lower. Traders who are unfamiliar with the hanging man candle formation, or who simply fail to recognize it, will likely view the candle as indicating further strength to the upside – and then be very disappointed when it turns out to be the top. The hanging man is, in fact, a sign of bullish exhaustion, and indicates a failure of upward momentum. Let’s take a look at one on a chart.
Just to the left of center is a pretty classic hanging man candle – the blue one with a sizeable downside wick and no wick at all on the topside. The hanging man interpretation of the candle is confirmed both by the doji candle that preceded it two candles earlier, and by the strong, red, down candle that immediately follows it. Although the market does make one more lackluster attempt to rally, there are no 15-minute candle closes higher than the one reached at the top of the hanging man candle. (The name of this candle formation refers not just to the fact that the candle resembles a drawing of a hanging man, but also to the fact that the candle that forms the hanging man is left hanging by future market action that tails off in the opposite direction. The hanging man candle is left all alone in its probe of the upside, as the market turns to the downside.
Just to make clearer the similarity, and the difference between the hammer up formation and the hanging man, here’s a side by side graphic illustration – again note that the key difference is where the candle occurs in relation to previous price movement.
Recognizing a hanging man can offer you an excellent opportunity to enter a market at a point that offers a very low risk point, as you can generally count on price not moving back above the top of that hanging man candle.
So, in conclusion, when you’re not busy hanging some guy to make a few pips, think about your personal journey, as a trader and in life. What’s it all about? Where is it you really want to go in the end? Where, what, and who, do you want to be?
Oh, before I go – If you haven’t been reading the specific trade analyses/recommendations written by Chris and Nathan here at Winners Edge in the past week, you may want to do that – because they’ve been spot on in their analysis. (And rumour has it that Chris will soon reveal the “Kangaroo Punch” trading maneuver!)
As always, I welcome your comments, ideas, suggestions – and any photos you may have of the dreaded drop bears of Australia.
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