The 5 Most Important Things That Improved My Trading
The 5 Most Important Things That Improved My Trading.
One. Realising there is no single magic solution to trading profitably. It is essential that you develop the skills to come up with your own trade ideas and build up the confidence to trust those ideas.
There is no single profitable trading solution and no magic one size fits all strategy — some people like to use fundamentals, some people like use technical analysis and some people like to use a combination of both. You could have 5 people looking at the exact same pair and those 5 people could come up with the exact same trade idea (say short AUD), but the strategies implemented to get to that conclusion couldn’t be more different. That in itself is one of the things that makes trading so damn beautiful and so fascinating.
The way I like to approach the markets is by looking at trends, waves and recurring patterns that occur in the charts. There is a huge misconception that if you trade that way you must not be interested in what the FED is doing, what the RBA is doing, NFP, abenomics, etc. — But I actually really love that stuff!
The way I trade may not necessarily be to everyones taste, but it works for me as I am working with my eye for trends. And that’s what you need to do — you need to build a repeatable method that not only works with your trading personality, but also works with your tolerance for risk, your available capital and your lifestyle.
With that being said, there will be times when the trade setups your method generates do not fit with what everyone on your Twitter stream is saying, or with what Mr. Bla Bla who has been doing this as long as you have been breathing is saying, or with what Mr. George Soros is ‘apparently’ doing. It takes tremendous discipline to be able to shrug that influence off and go with your own ideas.
If you have ever read Market Wizards by Jack Schwager (it’s a book of interviews with successful traders and I highly recommend you buy it if you don’t own it already), you can see that even the top traders have had to deal with their trade ideas sometimes conflicting with what others think. Here are the three answers that have given me the courage and the motivation to trust my trade ideas and trade in a style that suits me:
Michael Marcus on Ed Seykota being short silver when everyone else was bullish:
‘Everyone else seemed to be bullish, talking about why silver had to go up because it was so cheap, but Ed just stayed short. Ed said, “The trend is down, and I’m going to stay short until the trend changes”. I learned patience from him in the way he followed the trend.’
Paul Tudor Jones on the best crude oil trader he knows being bullish when he was bearish:
‘Because he was bullish, I never went short. Then the market started to stall and one day he said, ‘I think I am going to go flat here’. I knew that instant – particularly given the fact that bullish news was coming out of OPEC right at that time – that crude oil was a low-risk short. I sold the hell out of it, and it turned out to be a great trade’.
Paul Tudor Jones on picking tops and bottoms:
‘Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops.’.
Two. Starting this blog improved my trading more than I ever anticipated it would and I highly recommend you do something similar (go incognito if it makes you feel better).
The thing about trading is that it can be very mind heavy at times and the everyday life stuff that we all have to go through can be equally as mind heavy as well. Therefore, I sometimes like to use this blog as a little venting mechanism in order to help clear my mind so that I can continue to make the best trading decisions possible.
When I started my blog a year and half ago, I started with writing little daily updates on why I thought AUD/USD & ASX moved the way it did that day and what was going on around the world. I also included my little thoughts on trading and I put the occasional trade up so that friends of mine could see my progress. Were my write ups always correct? No way! I am sure they were embarrassingly bad. But doing that little exercise improved my trading dramatically.
Three. Realising that just because you come up with a profitable strategy, it does not mean you will automatically have the patience, discipline and confidence to trade that strategy exactly as planned, and being completely aware that it will be an ongoing thing trying to keep those emotions in check.
That is one of the reasons why I hate demo accounts — they give you a false representation of how you will perform as that ‘emotional attachment to real money’ component is taken out. That is why I always recommend trading your strategy with real money on a smaller scale to see how your mind will really perform. Better being safe and doing that, than going live with a massive amount of money and then realising 3 weeks down the track after you’ve completely annihilated your account that you have issues relating to fear, greed, or patience that you need to deal with.
With that being said, having control over your emotions now doesn’t necessarily mean that you will always have control over your emotions — like I said in the heading, it’s an ongoing thing trying to keep them in check.
Four. Not trading where I think the market deserves to be and not marrying a fundamental opinion.
I saw so many USD bulls that were anchored to their fundamental opinion get completely smashed over the past few weeks. It’s interesting times like these where you really just need to let the price guide you, and the price was telling me towards the end of last month that the USD looked like it was heading lower:
Over the past 2ish weeks, did I believe the price of EUR/USD deserved to shoot up? No way! But the chart was giving me clear signals that an uptrend was still in play, so I went long.
Remember a bit before I went on my blogging hiatus and my last AUD/USD long trade was from 1.036 into the 1.05’s? Did I believe the price of AUD/USD deserved to make that last little run up? Of course not!!! But you have to trade what you see and what I saw was the uptrend ‘should’ continue on.
Five. Every single trade is a calculated guess and is NOT a guarantee, therefore risk management is so important.
However strongly you believe in something, however amazingly coherent your idea seems to be and however sexy those technicals line up, there will be times when the market can and will prove you are wrong. That is something you must always remember and that is something you must always prepare yourself for.
I believe Larry Hite in ‘Market Wizards’ sums risk up perfectly in these 2 sentences:
(1) If you don’t bet, you can’t win.
(2) If you lose all your chips, you can’t bet.