We created a how to cope with pressure course with José Mourinho that explains the pressures of a volatile trading market, what risk management is, and more.
As XTB’s brand ambassador, José Mourinho has offered his views on how to cope with pressure and revealed his personal tactics for dealing with high-pressure situations. Below, you can find an overview of the pressures of a volatile trading market, the importance of creating your personal trading strategy, including an overview of what forex and CFD trading is, how to trade with the trend, how to conduct technical and fundamental analysis, as well as what risk management is. At the end of this article, you can also read the full interview with José Mourinho, and get a better insight into his winning mindset.
José believes in preparation and breaking away from your emotions during matches. This can be directly applied to trading, where having a good strategy in place is half the battle, and being able to stay rational and stick to that strategy even under pressure, is the other half.
In this lesson you will learn:
What differentiates professional traders from beginners is often their ability to adapt to any situation on the markets, and not shy away from volatility. While volatility can present a significant investment risk, it can also present an opportunity for shrewd investors. In this section, you can find out how to deal with pressure and stay on top of your trades even during high volatility.
First, let’s take a look at what volatility even is. Volatility refers to the amount of uncertainty, risk and fluctuations that occur on the market and, most often, to the amount of price changes over a given period on the financial markets. It’s a statistical measure of the dispersion of returns for any given instrument.
When it comes to assessing how volatile the markets currently are, most traders tend to follow the Volatility Index (VIX).VIX is a weighted index of implied volatility in options contracts on the US S&P 500 index.
In effect, it’s a gauge of fear or pessimism in the market of 500 large capitalisation US stocks listed in the US. As such, it functions as a barometer of general market confidence and risk appetite.
As is true for trading in general, trading volatile markets requires the trader not only to have in place a solid plan, but also to be mentally and emotionally prepared to manage risks. Most of all, traders need to be able to recognise the potential for significant loss of capital and still be comfortable trading.
If or when the trader is in the right mindset to start trading, the next thing to do is to revisit the risk control measures they have in place as part of their standard trading strategy. This includes their position size and stop-loss placement. Some traders, for example, decide to place smaller trades when the markets are volatile, and use a wider stop-loss compared to when the markets are quiet.
Having a good strategy in place is crucial not only when trading high volatility, but trading in general. As José Mourinho puts it: “It comes down to preparation. It’s important to always be prepared for all eventualities, because, in this way, you can adapt to pressure moments by relying on your preparation and your repetition.”
Creating your own custom trading strategy that fits your needs, personality and objectives can make dealing with pressure a lot easier, which means you can stick to your trading plan even when the unexpected happens.
While the thought of coming up with your own trading strategy might seem daunting at first, it actually entails nothing more than consistent application of the rules that you set for yourself, such as specific entry and exit points, trading in the direction of the prevailing trend, using moving averages, or using a stochastic indicator to help determine whether or not it’s safe to enter a trade after a moving crossover. Whatever it is, it should be unique to your and your needs.
The best trading strategy relies on a combination of technical and fundamental analysis. In this section, we’ll take a look at what exactly the two types of analysis are, and how to make the most of them.
Technical analysis is one of the most popular methods used today by traders to help them identify trading opportunities. It’s based on three simple principles: the market discounts everything, prices move in trends, and history repeats itself.
One of the key features of technical analysis is that it only considers price movement, while completely ignoring fundamental factors, since all these factors are considered to be contained on the chart itself. Therefore, the only thing that needs to be considered is the movement of the price itself.
Any unexpected events, such as natural disasters or geopolitical tensions, may affect the market, but a technical analyst is never interested in the reasons behind the price move. Instead, they focus on the chart itself; the shapes, patterns and formations occurring on the chart.
Whereas technical analysis focuses on the analysis of charts, fundamental analysis is based on analysing macroeconomic and political events. Fundamental analysts use an array of available data, including corporate earnings reports, macroeconomic data, geopolitical events, central bank policy, environmental factors, market sentiment, and more to help them with their analysis.
Fundamental traders then use this data to highlight discrepancies between current market price and its true value price, and then look to trade on the basis that a market’s price may return to its proper value.
Along with macroeconomic data, other important factors in fundamental analysis include the monetary policy carried out by central banks, interest rates, open market operations and central bank interventions, which are all closely monitored by financial analysts and traders alike. Moreover, fundamental analysts keep an eye on the outside influences that could affect an instrument’s value or price movement, such as floodings, earthquakes, and other natural disasters.
It’s important to note that technical and fundamental analysis often go hand in hand, and most successful traders are masters of seeing the complete picture.
Risk management is one of the key concepts to long-term success in the financial markets. A good risk management system consists of three aspects:
Below you can find José Mourinho’s exclusive interview with XTB. Here, José reveals his personal techniques for coping with pressure.
It comes down to preparation. It’s important to always be prepared for all eventualities, because, in this way, you can adapt to pressure moments by relying on your preparation and your repetition.
Once the whistle goes, I am only focused on the match and the moment. I don’t think about me or my emotions; I think about what is in front of me and what we need to do to adapt to what is happening.
For me, every game has a pressure because they all mean different things. There is pressure with a derby, a semi-final to make the final, a final to win the trophy, and 3 points to progress up the table and not lose your position. The best way to keep the pressure away is to prepare with consistency, and also in normal conditions so the players don’t feel anything different.
We don’t let outside influences affect what we do inside. Pressure is always there in football, so we focus on the basics and our preparation and we keep the environment fun but committed and professional.
If you want to continue learning, make sure to visit our Trading Academy, where you can find beginner, intermediate, and premium courses that can help you improve your trading skills.
To find out more about José Mourinho’s winning tactics, visit José Mourinho’s How to Prepare for Success Course and José Mourinho’s How to Control Your Emotions Course.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XIII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.