As the year closes we get an opportunity as traders to assess what we’ve achieved during the year. Not just in monetary terms, although that’s the primary reason we gravitate towards trading – profit, we get to analyse other aspects of our trading which may have represented achievements in the year…
Could it be that we created and stuck to our trading plan? That we avoided impulsive trading? That we failed to be influenced by opinion generated on trading blogs and trading forums? That we tightened up our money management and the risk elements in our trading plan and kept to perhaps 1% risk per trade? Or that we allowed our new method time (to deliver enough results) in order that we could make a decision as to its overall effectiveness?
The improvements and achievements we’ve experienced over the past year should indicate that as traders we’re moving in the right direction. Even the most experienced and profitable traders should be able to look at their performance over the year and be able to pinpoint the micro improvements they’ve made in their trading. However, if you can’t identify any trading improvements you’ve made it isn’t cause for alarm, but it should be a matter of concern. As traders at all levels we must improve year on year, if not then stagnation in trading habits could eventually lead to falling profits.
What trading resolutions can we make for the coming year and more importantly what mechanisms can we put in place to ensure that we stick to them? Let’s look at certain key issues…
I will stick to the risk I’ve identified in my trading plan
As part of the 3Ms in our trading plan (mind, method and money management) MM arguably ranks highest. Even on a 50:50 basis, blindfolded whilst throwing darts, the market can reap rewards with the correct MM. If our money management was an issue during the past year then the resolution is fairly simple; set out the risk you’ll make on each trade and never violate it. If it’s 1% risk per trade then that’s the level that should not be breached under any circumstances. Don’t add to losers don’t add to winners, simply stick to the risk per trade on a single security and if you trade more than one security stick to the overall level of risk you’re prepared to accept at any one time, whether it be 2% or 5%, never violate it.
If you’re not a trader who places MM high up in your trading agenda then perhaps now is the time to adopt that new year resolution. The most experienced and successful traders, whether at institutional level or retail level, control risk at every opportunity.
If you’re a trader who risks perhaps 1% per trade then perhaps that risk can be tightened up by the use of trailing stops, dynamic or otherwise. Rather than losing the full one percent per trade the loss could be reduced dramatically by the use of trailing stops, perhaps over a series of losses the loss per trade could fall to 0.5-0.7%. Now whilst that micro adjustment mightn’t read as much it could be a 30-50% ‘saving’. For example if your stop loss is at 100, but through the effective use of trailing stops you cut the loss down to 70, that 30% saving could have a huge impact on your bottom line, especially if measured over a significant period over perhaps the past year.
So let’s make the resolution that in the coming year we stick to our risk as outlined in our plan and look towards the effective use of trailing stops to lock in profits and or protect our losses from reaching the full level of risk per trade.
I will observe other traders’ trading performance and methods, but will not be negatively influenced by it
It’s natural that as competitive human beings we compare our performance and trading versus others and many times we can become negatively influenced by it. We’ll see ‘off the scale’ performance and accept it as real and become frustrated that we can’t achieve such results. Similarly we’ll read many extremely negative views posted on forums from traders, who may have failed in their ambitions to become self-employed traders, who’ll then take perverse delight in attempting to negatively influence others. It’s important that traders fail to be swayed by others’ opinions, extremely positive or negative, that we read on independent blogs or forums. We have our plan, it’s unique to us, it’s fashioned around our own trading beliefs and principles, let’s not be influenced by others.
I will communicate more with my broker
Brokers such as FXCC provide a wealth of material published on their site or on their blog. However, many traders bypass their brokers expertise in favour of digging for information through search engines, or on forums. Straight through processing brokers and ECN brokers make their money through the volume of trades their clients make, they therefore have a vested interest in their clients prospering. Your broker will help you in whatever way they can to be a loyal and prosperous client. Make it a New Year resolution to communicate more with your broker, there are skilled individuals there whose only interest is in your future prosperity, try to make use of it and us in 2014.
I will keep aware of fundamental policy decisions and high impact news events
Being aware of what moves the market and why provides an incredibly useful insight. Whilst an argument could be put forward that the information eventually ‘bleeds’ onto our charts the facts remain steadfast; the major market moves, particularly in indices or FX trading, are caused by high impact news events and policy decisions, therefore it pays a trader well to stay ahead of the curve of high impact news.
For any trader doubting the effects of news and announcements let us offer up this suggestion, particularly useful as the year nears its end; pull up a daily chart on one of the most liquid securities, such as EUR/ USD, USD/JPY, or the DJIA and pinpoint the days on the chart when we experienced violent swings in market sentiment. Then search the news for that particular day. Without a doubt a high percentage of those dramatic swings will be related to news events, not price reaching a line drawn on a chart.
I will eliminate impulse trading
It’s a mystery to many of us in the analyst community (and in the mentor community) why traders trade impulsively once they’re out of their new trader learning stage. After months or perhaps years of perfecting and committing to a plan, they suddenly see an opportunity outside of their rules and scope of their trading parameters and can’t resist the rush of excitement as they take a trade that has no relationship with their high probability set up structure. The trade fails and they curse themselves as to why they took a trade outside of their plan’s rules. Whether by using automation or by developing a cast iron will traders must stick to the plan. Traders who fail to maintain discipline will always suffer losses outside of the tolerance set out in their plan.
Eliminating impulsive trading, staying up to date with high impact news events, communicating with your broker, sticking to strict money management rules, ignoring idle chatter on blogs or forums are just some ideas for resolutions that traders may wish to address in order to improve their chances of success in 2014. As always we’d welcome feedback with any others you may have.