There’s a certain truism in FX trading; once the ‘bug has bitten you’ it’s very difficult to turn your back completely on the wider industry and the activity of trading. Even if you’ve tried FX trading and lost money in your first (or second) adventure you’ll always tend to believe that the next time, in this instance the third time, will be different, this time you’ll get everything right from the start and finally be successful.
The really good news is that you’re not alone, the FX industry and wider retail trading industry is full of stories were we had to fail once or twice (or even several times) before getting it right. And no two paths that we walk down, to eventually see the light of trader enlightenment, are the same, each one of us will have an individual story of how we eventually gained success.
But what can we do differently in our third and perhaps final chance at FX trading that’ll be so different from our admitted failure in our first two efforts? What lessons did we truly learn from our first two failures that’ll assist us in making better decisions this time? Can we quite simply and methodically correct the mistakes that led to our downfall in our first two attempts?
In answer to both questions the time we’ve spent out of the market will have taught us several lessons. We’ll know if our real appetite to return to the industry exists by how consumed we were with thoughts of trading in our absence from the market. If we constantly thought about trading and kept informed over what the market was doing each day that gives us a big clue as to how motivated we really are to return. There’s little point in returning to trading with a bloody minded ‘revenge trading’ attitude that [quote]I won’t let this beat me[/quote] as that type of emotional response will surely lead to more of the same previous mistakes. It’s essential that we return refreshed mentally and with a healthy attitude towards trading.
We have to identify the mistakes we made and perhaps constantly repeated, that led to our failure in our first two efforts at trading. We need to take a cold and heartless forensic analysis on where we went wrong. In doing so we will undoubtedly give ourselves a fighting chance of winning in our third attempt at trading.
The really good news is that the mistakes we made in our initial efforts are probably the major mistakes that many traders make in their first efforts at trading and they boil down to two distinct areas and we make no apologies for repeating these. They are a lack of a detailed trading plan and within that plan a lack of strategy that has at its core money management and the control of risk. These two aspects are the most common mistakes we make as traders and the easiest to rectify, so much so that it’s a mystery how we manage to trip ourselves up over such simple to remedy issues.
Despite the three Ms of trading (mind-set method and our money management) being extremely important and ranking equally it’s the money management aspect of our three Ms and the overall trading plan that we’ll be concentrating on in the final part of this article.
Trading plan
There are many free templates out there regarding trading plans and a lot of the content we should contain within our trading plan is quite frankly what we’d term “common sense”. For example, the plan could entail what securities we’ll actually trade, what risk we’ll take per trade, what our overall trading strategy will be, what times of the day we’ll trade, what drawdown we’ll experience before stopping trading, how many losing trades in series will we accept before stopping trading, how many trades will we take in a day, week or month. There’s lots of other content we could contain in our journal and we could even take the extra step of linking our account to one of the many diary and blotters of trading activity out there.
Money management and risk
As we’ve already pointed out in our trading plan synopsis some of the key ingredients in our plan will concern money management and risk as this is most likely how our trading went wrong in our first two efforts. Not only did we trade without a plan, we also failed to take on board the impact that poor risk/money management would have on our bottom line profitability. And just like the simplicity of the trading plan implementation the correction of the money management issues will have drastic effects on how we control our losses and our account.
Moreover, if we make a real effort to control our risk in our latest trading venture then our third time efforts will probably be the time we finally get it right as in theory and in practice if we only risk perhaps 1% (of the original account size) on each trade then we’d need to have a series of 100 losing trades to be wiped out and that improbable outcome is such a rare eventuality that we can dismiss it.
Controlling our risk and committing our risk parameters to our trading plan are without much doubt two of the essential remedies we can take to cure our previous trading mistakes. Addressing these two simple aspects is, as we’ve pointed out, far easier to remedy than many of us would appreciate. Taking control of them now should ensure that its third time lucky for our trading venture and that a fourth time around shouldn’t be necessary.
