After many weeks of daily active trading on my part, I've hit a bit of a quiet period in which I'm still getting good trades off, however they aren't the 2-3 per day I was getting on occasion. This is in part due to the recent spike in vol we have seen on the back of market jitters based on rising global yields. Market conditions just haven't suited my way of trading.
So during this period I was reflecting on what the best thing(s) to do are when you hit these inevitable periods where you cant seem to find 'that trade' which seems to grab you and say take me! I shared with the SentiFX slack chat group my thoughts on the subject of trading mindset and would like to do the same today in my blog. The following is written off the cuff so apologies if I ramble at times. These are a few of my beliefs on trading and how best to approach it in order to make some profit and then keep it!
I've been in the financial markets for approx. 20 years now, trading for myself as well as holding varying positions on the buy and sell side in the City Of London at a few of the big names that most of you would have heard of. In this time I went on quite the journey with my personal trading account which saw me blow more then a couple of accounts. It was a case of sharp rise, big blow out, then rinse repeat... very frustrating indeed. I would do well with a new system or set of indicators before busting out and jumping to a set of new ones. I would spend time on the forums like Forex Factory/TSD etc. getting myself carried away with the madness of the retail crowd who had to be in the market at ALL TIMES every day using maximum leverage... this helped to keep me in the losing cycle.
Being completely honest it was only in recent years that something clicked and I found that my personal trading took a turn for the better and I was able to finally put the boom bust behind me. It began with me firstly beginning to trade the account around break even... small ups and downs in equity curve but on the whole slightly positive. This moved onto me actually starting to pull more decent profits in with a smooth equity curve rather then one which resembled a whipsaw!
Don't get me wrong, reading someone else's path to getting out of their trading rut doesn't mean you will immediately 'get it' and become profitable (you may)... Even if the person's story you read gave you ALL their trading rules for taking and managing trades etc., it still doesn't guarantee success. Why, I hear you ask? Well, I often moan about some of the poor choice my kids make in their day to day lives. I will sigh and say to myself 'Experience can't be taught' to remind myself that they are still learning and have to make their own mistakes at times. So with that said, I'm sorry to say that if you are still quite early in your own trading career then it's likely that you will need to take a few more beatings at the hands of the market to break any remaining stubbornness in you or firmly held beliefs that you know whats going to happen next on a chart. But persevere my friends, as things will get better for you! Turning up on the SentiFX site was a good start! Remember this is a probabilities game and not a certainties one. Stack the odds best you can in your favor on every trade. Cut and run if it doesn't work, as over the long term you will come out ahead.
Although painful, I wouldn't change a thing in my journey to date because my perseverance led me to the truth... I was in control of my trading destiny and the results that I got. Nobody else was, and I could not place any blame on a system or indicator for past disappointments. Perfection is conceding that you cannot and will never be able to push the market around and get them to act in the way you believe they should. We have zero control over this I'm afraid. There is no one indicator or system that will happily churn out buy and sell signals all day from which you can merrily make your stack from - doesn't exist. Trust me, I've worked at some big names and sat alongside professional prop traders (before capital at banks got ring fenced) who would still lose a lot of money even with all the flash systems, IT support and research teams at their disposal. They I think, like most retail traders, had a mindset issue and not a technical one.
In the market wizards book (must read) there was an interview where the successful trader basically said you must find a system or way of trading that is a good fit for your personality, as a trader cannot follow a system, however good, if it doesn't fit their personality. I couldn't agree more.
My trading is now very simple indeed:
- I have a list of basic chart patterns that I like to trade using support or resistance zone/trendlines
- I have methods of multi-entry based on the patterns I identify which includes knowing that I'm not trading with the retail crowd (sentiment) and use that to my advantage
- I have rules on how much I will risk on a trade
- I use very small leverage so I dont feel every pip that moves against me whilst I wait for a setup to play out
- I know where I'm getting into a trade and also where I'll either take a loss or a profit. I know these things before I take a trade.
- I keep up to date with important market moving events and fundamental news which can increase my trade conviction if these line up with my technical views
Although the above is simple enough, actually following one's rules is the tricky bit and why most traders fail in my opinion.
Even if a system is back tested as well as forward tested, shown to be profitable, however the catch was that there would be long periods of drawdown... sometimes large drawdowns... for some, this would be too hard to follow, as when your real money account is down 30% say, it becomes hard to think straight which is especially true if you are using too much leverage. So it gets to the point where after a few beatings that saw you lose money, you start to second guess the rules which leads to you seriously damaging the system's edge and long term profitability.
I can follow my way of trading as it fits my personality. By nature I'm quite a contrarian and for long time I was using futures volume analysis only for my crowd sentiment views. The Sentiment Analysis Tool was such a huge help for me simplifying the process of analysis retail positioning. When I see a setup that ticks the boxes of my system, I will put my trade on or lay a limit order and feel 100% relaxed about it as I know that I've stacked the probabilities in my favor and also be able to hold to trade to my target as it isn't at odds with my personality. Again, trade success is NOT guaranteed on each single trade, however more probable then not to go my way over time. If the trade doesn't work then my limited risk and trade size keeps me at the table for another go, and another one and... you get the picture. If like recently there are periods that don't give me any obvious trade opportunities then I do nothing. I simply wait for the market to come to me. Remember the market will be here every day. This thing isn't going anywhere (I hope) so relax and find something else to do whilst you wait it out. My style is suited to trading with the price trend taking pullbacks with the dominant trend against retail. If we have entered a range bound or whippy market conditions I stand aside, go for a walk/run/take dog for walk or spend QT with family... you choose, but just do something healthy that stops you being impulsive. Just don't over trade. A chart will tell you anything if you torture it long enough... think about it.
So in summary, get a pen and paper and really start to think about your objectives and write a trading plan. Plenty of resources out there which provide templates for this. Go search them out, but get a plan and stick to it.
- Plan your Trades. Trade your plan
- Don't let a win go to your head or a loss to your heart
- Don't use leverage or at least only use a little
- Get out of a trade as planned before trade execution
- Don't trade because you are bored, don't overtrade
- Expect and accept losses gracefully. Those that brood over losses always miss the next opportunity, which will likely be profitable
- Standing aside is a position
Inside the SentiFX community, Charles and I discuss our trading regularly, so if you need some one-on-one help, come join us inside.
Hope you enjoyed reading.
Good article. Good explanation indeed.