4 questions to ask yourself when chasing a big move

The financial markets are off to a pretty good start this year as we see sizeable rallies left and right.

It can be tempting to jump on those huge price swings while they happen, but is it true that only fools rush in?

Here are some quick questions to ask yourself before you even consider pursuing a move:

1. Am I feeling FOMO?

No, FOMO does not mean “focused and motivated.”

Fear of missing out (FOMO) is a very common emotion among traders and might be something you need to be aware of before trying to join any big move.

Worrying that you can’t catch a potential windfall is not a good enough reason to blindly jump into a trade. Who knows if the movement is already wow exaggerated or if the price is likely to fall?

If you often find yourself regretting not being able to make hundred-pip rallies or dips, it could be a wake-up call to reevaluate your trading strategy.

Instead of wallowing in negative emotions, start by reviewing those big moves and figuring out what indicators, inflection points, or economic events you should have been looking at instead.

2. Are the factors that led to the move still in play?

As they say, the only constant is change. And when it comes to forex trading, changes can happen quite quickly.

Before you try to go with the flow, make sure the tables aren’t about to turn. Other useful questions include:

• Has the market environment and risk sentiment changed since the move began?
• Are there new game changers (eg: regulatory change, market circuit breaker, trading restrictions) that have emerged?
• Are technical indicators, candlesticks or market volume showing signs of exhaustion?

3. How will I manage my risk appropriately?

Now that you’ve concluded that the big move is still worth pursuing, the next step is to figure out how you’re going to protect your account and limit your losses just in case the price is against you.

There’s no such thing as surefire satisfaction in trading, right?

As you learned in our School of Pipsology, trading without any risk management is no different than gambling.

Setting exit levels while catching sudden market moves can become difficult as higher volatility could easily trigger any tight stops, so you can’t be too conservative.

Of course, you shouldn’t trade without stop losses either!

Also consider trading smaller than your usual position sizes and then expanding if the trade goes that way. This eliminates some of the FOMO now that you have skin in the game.

While you probably won’t hit a home run right away with a small position, you can go into it knowing that you also can’t get blown out if you get it completely wrong.

4. Can I still get in at a much better price?

It’s easy to get caught up in the excitement of price action that you may overlook potential entry points that could give you a much better return on risk.

Are you likely to enter a pullback, even in the short term? Psychological levels hold and allow for quick jumps you can enter?

If so, you’d better wait patiently for these bargain prices, which can allow you to manage your risk much better.