How Forex is Likened to a Game of Chess

As an avid Chess Player, I love strategy. I believe this is what has drawn me into the Markets, this game of chance and probability.

I wanted to approach this thread from a different angle other than simple “strategy.” I want to show newer traders how they can use Pawn-like pieces in the market to protect their current positions.

You see, pawns in the game of chess are not meant to stick around the entire game. Eventually their end goal is to protect the more valuable players, the King the Queen and so on.

I view my King in the market as my Stop Loss. Many people feel that their Stop Loss is the end all protection but I feel an undertaught principle in the market is protecting the stop loss itself.

How do I do this? I look for major levels in the market, and then I place the stop loss beyond that level. This allows me the freedom to stay in the market when the stop runs occur.

By protecting a stop with price levels and technical aspects of the market, a trader can exit at better prices most of the time, instead of always needing to take a loss at the full stop level.

I will draw an illustration for you all, as I feel this has really helped my trading.

The image here depicts in a simple manner what I am explaining.

simple example.bmp (960 KB)

Normally i preffer to exit manually when it goes wrong before it activates SL. To do so i make an analisys of the situation, how did i get in? that is the first question i ask myself, it has a technical justification? Was I on my toes? Wasn’t I to exited? And so on, how behaved the price after placing order? What patterns are forming? How long it is taking for turning so bad? So when it loses sese i just close it manually, period. Cut you loses short, better if they don’t activate SL.

I have gotten in the habit of asking, “at what point is my analysis no longer correct?” and that is where my S/L is set. That little bit of advice really helps.

Mr. Gone I really like your view on the market. It seems that you are always thinking in terms of What the Market is seeing. To think like you do requires great mental flexibility, to handle any situation, and see what others see. What a great quality, keep up the good work.

It seems like a lot of traders view their position only from their profit and loss point of view. They say to themselves- Well this position is down 15 pips so I will hold onto it. Rather than saying, similar to to Mr Gone’s comment–What is the Market seeing? A great strategy to get out when the market says you are no longer right.