You think you’re hopeless at trading, so what’s wrong and how can you fix it simply and quickly? Part one
You’re not alone if you’ve experienced real ‘down on yourself’ moments in trading. Thoughts of giving up, smashing up your monitors, dropping your laptop from the upstairs windows and watching it crash onto the concrete below, are all thoughts we’ve had from time to time and what’s worse, some of us have turned those thoughts into actions.
But fear not fellow traders, we’re of the belief that certain ‘fail traits’ that we’ve developed as traders can be repaired very easily, inside minutes with conversation and tutoring from a skilled mentor. Many of the fail traits that we repeat constantly require a two part solution; identification followed by resolution. Unfortunately many of us fail to actually recognise the fail traits we’ve developed and it often requires a mentor, or objective observer to identify these traits.
In this article we’ll concentrate on certain harmful habits and offer up resolutions. As always we’d be delighted in reader feedback for any additions our community would like to make. We’re going to break this article up into two sections as once started we began to realise that it would be a long one, so here’s part one with the second instalment due on Tuesday in our ‘between the lines’ section.
Trying too hard to pick the tops and bottoms
In a recent article we published on trend trading we discussed how being in right at the turning point of a trend can be counterproductive and costly. Firstly, the trend might not actually be there yet, despite all the indicators and price action screaming out otherwise. And secondly the stop you require (at the very beginning of a trend) often needs to be greater and has more chance of a retrace than when the trend is actually developing. The solution, as we alluded to in our recent article, is to ensure the technical analysis is supported by the fundamental analysis.
A major, violent trend reversal only happens due to a major fundamental policy decision, or high impact news event. We rarely see a sea-change in direction based on price hitting a line we’ve drawn on a chart/time frame. Learning to marry up; price action, technical analysis and fundamental analysis and identifying why a security has ‘turned’, may require you being a day (or two) ‘late’ in entering, but it’s by no means the wrong decision. So stop trying to pin point the tops and bottoms of a momentum move, try to pinpoint when a trend is developing and ride it for all it’s worth.
Lack of motivation
We’re seduced by images from the trading world showing good-looking, young, twenty something’s, with brilliant white teeth, tanned skin, in Armani suites, busily playing a six monitor set up like it’s a Yamaha music synthesizer. These positive mental images are everywhere and sadly ALL brokers are guilty of these advertisements selling supposedly attainable lifestyles. And let’s be honest, images of a bloke with five day stubble, in his pyjamas, huddled over his ten year old laptop, crying into his porridge because he forgot to use a stop on his dollar yen short and Abe has just announced he’s doubling Japan’s asset purchase programme, isn’t going to sell we’ll is it?
But you don’t have to be this imaginary supreme ever enthusiastic human being to ‘win’ at trading; some of the best traders are depressingly realistic about the industry. And without a doubt there are days when you’ll lack motivation for the task, as with most jobs and endeavours. So realising you’re only human and that you’ll have off days is entirely natural. However, it shouldn’t prevent you from taking the trades according to the high probability set up strategy laid out in your business/trading plan. You don’t need motivation to react to a signal generated on your charts, to then check on the fundamental news backdrop before taking a trade. Even if you’re suffering the worst case of ‘man flu’ there’s no reason why you can’t take the trades according to your plan. Lacking motivation? Just stop looking for excuses and trade the plan.
Lack of preparation
There is no excuse for lack of preparation in this industry. Nothing in trading should be knee jerk, random, or spare of the moment. If you’re trading freehand, on time frames such as the five to fifteen minute chart, taking trades according to when your set up happens, then the possibility exists that you’re trading all wrong. “Trade less earn more” is something that we’ll never tire of advising and that’s from the position of being an STP broker who makes money on every trade you make, therefore you’d expect us to encourage over trading. But we know, as responsible brokers, where the majority of our clients gain success and it isn’t trading of tick charts whilst knocking back copious amounts of Red Bull energy drinks.
“Fail to prepare, then prepare to fail” is a mantra that’s highly effective were trading is concerned. Every aspect of your trading must be prepared and committed to your trading plan; the type of trading you engage in, the securities to trade, the times of day and the overall strategy.
We all suffer personal biases were trading is concerned. We might read up on the vast amounts of quantitative easing the USA Fed indulged in in 2013 and struggle to believe why the dollar hasn’t crashed versus the euro. After all the ECB didn’t indulge in quantitative easing throughout the year, preferring to manage the euro’s value through the effective policy of rate cutting.
We’re using lots of ‘trading clichés’ in this article and here’s another one; “the markets can stay irrational longer than you can stay solvent.” Abandon all your pre conceptions, the markets provide incredibly accurate and effective readings on the market and the market is always ‘right’.
Consider it this way, there’s a global tug of war occurring on EUR/USD as we speak, circa $5 trillion is now estimated to be turned over in the FX industry daily Monday to Friday. When you consider all that activity the market finds its true level. Never try to predict direction, simply follow the trend. Eventually the bulls or the bears will pull that tug of war rope in their direction, could be by 0.1% on the day, could be over a full percent. But that’s what we’re witnessing – a giant currency tug of war contest.
Don’t have biases; none of us can accurately know what the market will do on any particular day. Take today January 2nd 2014 as an example, the European indices sold off and many of us analysts were left scratching our heads as to why. But you don’t have to figure out the why in order to make money, you only have to devise a trading strategy to follow the moves.
Irrational belief that the game is rigged
No matter how many times we read this conclusion on forums or blogs it brings a smile to our face. Two words; latency, arbitrage. Five more; the market is not rigged. How traders can lose a trade (in FX particularly) and then immediately blame it on their broker, or the major institutions is baffling. Your broker isn’t about to move their market quotes ten pips from the ‘real’ market to take out your stops, if it does it risks that process becoming wide known and clever traders would take more money off the broker through applying arbitrage to the broker’s latency.
Traders really need to give up on any irrational fear of broker misbehaviour before it becomes an issue affecting their trading. Brokers systems occasionally fail, especially at times of high volume, such as the monthly publication of the NFP figures. But neither the market, the institutions, nor the brokers who ultimately provide your quotes, are out to get you.