Becoming a Better Trader – Rules to Trade By
Whether you are a new trader building a foundation or an experienced trader struggling (happens to the best), here are 4 ideas to help you Build Confidence in Trading
The idea behind this webinar was to share a few core tenets to trading that I have learned over the years. Some of them might seem a little cliché, but many clichés are worth a lot if considered carefully and of course applied correctly. We started off with the most important facet to trading – risk management, of which without none of the rest matters. There is a bit of overlap to some of the bullets below, but that is only because there are specifics to trading which should be highly emphasized.
You can get away with breaking all the rules except those related to Risk Management
You can break every rule in the book, but if you implement sound risk management techniques then you should never take yourself out of the game. Stringent risk management parameters are there to allow you to live to fight another day; small risk-per-trade, overall account management, sticking to stop losses, etc. You could have the best trading strategy in the world, but without good risk management eventually things will go awry. For more on this topic, you can also check out this webinar on risk management.
Better to trade too small than too big
This is of course an extension of the above, but its importance can’t be overstated. It is best to find a happy medium, where your trading size is ample enough to keep you engaged and providing meaningful results, but not too big where it starts impeding on your ability to maintain objectivity and discipline. Remember, everyone has different tolerance for risk – Trade with risk that you are comfortable with.
Good trades find you
Staying focused and doing your research is important, but at the end of the day it shouldn’t be a strain to find opportunities which fit into your game-plan. They tend to surface. It’s better to under-trade than over-trade. Forcing the issue leads to avoidable losses, frustration, and ultimately more mistakes.
No position is a position
Often the best place to be is on the sidelines. This one gets lost in the fray as either the temptation to trade becomes irresistible or it feels as though you are not doing your job as a trader. More time should be spent observing than trading. In fact, a very disproportionate amount of time is typically done doing the former over the later unless you are a scalper, darting in and out of the market over the course of a day. Opportunities generally appear in clusters because of volatility cycles, and so you may be busy then suddenly not busy and vice versa.
We understand the difficulties of trading, which is why we’ve put together a variety of guides designed to help traders of all experience levels.
Losses are part of the game, get used to it
This one can be really hard for some people to accept. In general, we don’t like to lose. But losing is something that a trader must get really, really comfortable with as you will be doing a lot of it. Remember, profitable trading isn’t about being right all the time, rather it’s about making more money over times when you are right than the times when you are wrong.
Consider shrinking your market watchlist
This one is even more important the less experienced you are as watching too many markets or currencies can be overwhelming as you try and decide between what to trade. Markets don’t all trade the same and familiarizing yourself with the various nuances can help aid in spotting opportunities. It’s a good idea to keep your world as small as possible without limiting yourself.
Routinely take a step back
Don’t go 100%, 100% of the time. If you do you run the risk of burn-out. Take days off, don’t skip on a vacation out of fear markets will move without you. They will be there when you return. Taking mini-breaks to refresh and performing periodical reviews can go a long way towards staying on track and making improvements. If trading feels difficult, walk away and come back another day.
Trading is mostly stressful because we make it so
Trading is hard, no question, but a lot that has to do with the struggle against ourselves (i.e. maintaining discipline). A few things that commonly trigger stress: Taking poor quality set-ups due to lacking patience (compulsive trading is a killer), taking too much risk, monkeying with open positions out of fear (often size-related), hesitating to take trades because of fear (often stems from recent losses). It is easier said than done, but do your best to avoid doing the things which make trading more complicated than it needs to be.
Have a trading plan
Everyone must have some type of plan. You won’t make it far if you are shooting from the hip. You don’t need to make a 50-page business plan, but you should have down a framework from which you can operate within. And of course, risk management is the most important section. Start there. For more on creating a customized trading plan, check out this past webinar.
For the full conversation, please see the video above…
The Becoming a Better Trader series in one location, check it out.
---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.