The Peaks and Valleys Approach to Trading

Filed under: Learn Forex Trading |

A while ago, I did some book reviews and I briefly mentioned a book called “Peaks and Valleys”, written by Spencer Johnson. It involves a short story about a young man who lives unhappily in a valley until he meets an old man who lives on a peak. The book teaches us that every aspect of our lives involves personal peaks and valley, and that they are a part of a normal, healthy life. Today, I would like to apply some of the lessons taught in the book to the world of forex trading.

 

To begin with, look at every forex chart. You will immediately see that every chart has ups and downs, or what we will call peaks and valleys. It is just like a heartbeat. If the chart went in a straight line, you would not be able to trade – and just like a heartbeat, it would spell death. So ups and downs are necessary in any profitable market.

 

Now, when trading, we all have peaks and valleys on our equity curves. In the words of Spencer Johnson, “Peaks are moments when you appreciate what you have.” This is when things are going well and you are being very profitable. But “Valleys are moments when you long for what is missing.” This is when you are losing money and you miss the times when you were in profit. The lesson is, that between peaks, there are always valleys. How you manage your valley determines how soon you will reach your next peak. What does this mean in terms of trading? Well, if you stick to your methodology and your rules during your valley, and work hard and review your trades to make sure that you are not doing anything wrong – then you will soon start climbing your next peak. However, if you start doing unusual things and taking risks, you will fall and stay in the valley even longer.

 

Although this book is not about trading per se, I think it is well worth a read and you can apply many lessons to your trading. Who knows, it might even change your life! It is that good.

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